| Popis: |
In this study, I examine whether and how analysts' pre-tax earnings forecasts are informative to investors. Specifically, I first examine the determinants of pre-tax forecast coverage and whether pre-tax forecasts are incrementally informative to investors in evaluating firm performance. Next, I examine whether pre-tax forecasts decrease the transparency of tax-related earnings management. Lastly, I examine how pre-tax earnings forecasts influence management's incentives to avoid taxes. Using I/B/E/S data from 2002-2011, I find pre-tax forecast coverage is associated with firm-level tax characteristics. In addition, I find investors utilize pre-tax earnings forecasts in evaluating firm performance, after controlling for after-tax earnings forecasts. In addition, the results of this study indicate investors more significantly discount earnings which have been managed through the tax account when pre-tax earnings forecasts are available, consistent with increased transparency resulting from detailed forecasting. Lastly, I find some evidence that increases in pre-tax forecast coverage are associated with a decrease in tax avoidance. This result is consistent with a change in management's incentives resulting from the existence of additional performance benchmarks. Collectively, this study provides evidence that pre-tax earnings forecasts are informative in multiple settings. These findings have important implications for academics and practitioners in understanding the role of additional non-EPS income statement forecasts. |
