Influence of tax aggressivity on the forecast of financial analysts

• Published in: Revista de administração Mackenzie 2024-01, Vol.25 (2), p.1-34
• Main Authors: Araujo, Marcus Vinícius Freire Uchôa, Tardin, Neyla, Antonio, Rafael Moreira
• Format: Article
• Language: English
• Subjects: Accuracy; Aggressiveness; Asymmetry; Cost control; Generalized method of moments; International Financial Reporting Standards; Tax planning; Taxable income; Taxes
• ISSN: 1518-6776; 1678-6971
• DOI: 10.1590/1678-6971/eRAMF240072

Purpose: This paper aims to verify whether the management of taxable income through aggressive tax practices negatively impacts the accuracy of market analysts' forecasts. Originality/value: The central contribution of this study is to relate tax aggressiveness with more significant errors in analysts' forecasts. Thus, the relevance of this paper is in showing that this practice can lead to a greater perception of companies' risks and more significant informational asymmetry, in addition to influencing stock prices and resulting in lower analyst accuracy. Design/methodology/approach: This research paper was developed from regression models with panel data with random effects, also using estimators based on instrumental variables with the application of Jensen's test to verify the validity of the generalized method of moments (GMM) estimation. The data were treated with the winsorization technique at the 1% level. Findings: A sample of companies listed on the B3 between 2010 and 2017 (with a total of 2,805 valid observations) showed that companies with higher tax aggressiveness are subject to a higher analyst forecast error. Thus, it is inferred that, for more aggressive companies, the degree of analyst predictability decreases. With this drop in the quality of analysts' forecasts, the users of their forecasts and reports are more vulnerable to informational asymmetry.