TY - UNPB
T1 - Can Disclosure Characteristics Improve Analyst Forecast Accuracy?
AU - Hutchens, Michelle
PY - 2017/9/28
Y1 - 2017/9/28
N2 - This study provides new evidence about how tax footnote disclosure characteristics can alleviate errors in analyst forecasts of a firm’s effective tax rate (ETR). Despite the importance of income taxes to a firm’s bottom line, prior studies indicate that analysts and investors do not fully grasp the complexities of income taxes. Additionally, the FASB is interested in improving the effectiveness of financial statement footnotes and is evaluating the income tax footnote as part of the Disclosure Framework Project. I find that disclosures containing more quantitative information, less jargon, fewer complex words, and/or less legal terminology alleviate analysts’ ETR forecast errors related to complexity in income tax accounting. Collectively, my findings provide evidence regarding the areas of accounting for income taxes that make forecasting ETRs difficult and the disclosure characteristics that aid analysts’ understanding of tax information and thereby improve their ETR forecasts.
AB - This study provides new evidence about how tax footnote disclosure characteristics can alleviate errors in analyst forecasts of a firm’s effective tax rate (ETR). Despite the importance of income taxes to a firm’s bottom line, prior studies indicate that analysts and investors do not fully grasp the complexities of income taxes. Additionally, the FASB is interested in improving the effectiveness of financial statement footnotes and is evaluating the income tax footnote as part of the Disclosure Framework Project. I find that disclosures containing more quantitative information, less jargon, fewer complex words, and/or less legal terminology alleviate analysts’ ETR forecast errors related to complexity in income tax accounting. Collectively, my findings provide evidence regarding the areas of accounting for income taxes that make forecasting ETRs difficult and the disclosure characteristics that aid analysts’ understanding of tax information and thereby improve their ETR forecasts.
KW - disclosure effectiveness
KW - income tax footnote
KW - effective tax rate
KW - analyst forecast accuracy
U2 - 10.2139/ssrn.3042836
DO - 10.2139/ssrn.3042836
M3 - Working paper
BT - Can Disclosure Characteristics Improve Analyst Forecast Accuracy?
ER -