Influence of countries’ tax enforcement on the relationship between tax expenditure surprise and the accuracy of financial analysts' earnings forecasts
DOI:
https://doi.org/10.17524/repec.v19.e3431Keywords:
Analistas Financeiros, Previsão de Lucros, Surpresa na Despesa Fiscal, Enforcement FiscalAbstract
Objective: To examine the influence of countries’ tax enforcement on the relationship between tax expense surprise and the accuracy of financial analysts’ earnings forecasts. Method: Data from a sample of 4,775 companies across 35 countries from 2001 to 2019 were analyzed using descriptive statistics, correlation analysis, and Ordinary Least Squares (OLS) regression tests.
Results: Financial analysts systematically issue optimistic earnings forecasts, and tax expense surprise is incrementally relevant to earnings surprise in explaining analysts’ future errors. These information intermediaries do not efficiently incorporate tax information when issuing their earnings expectations. The findings indicate that analysts use tax information more effectively and improve the accuracy of earnings forecasts in environments with high levels of tax enforcement. However, the results were insignificant when U.S. companies were excluded from the sample.
Contribution: These findings underscore the importance of tax enforcement and tax information in shaping financial analysts’ expectations about future performance, contributing to greater efficiency in the capital market.
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