Reports Outline Accounting Study Findings from University of California (Do Analysts Matter for Corporate Tax Planning? Evidence from a Natural…

Reports Outline Accounting Study Findings from University of California (Do Analysts Matter for Corporate Tax Planning? Evidence from a Natural Experiment)

By a News Reporter-Staff News Editor at Investment Weekly News -- Investigators publish new report on Accounting. According to news reporting out of Irvine, California, by VerticalNews editors, research stated, "We exploit an exogenous shock to analyst coverage as a result of brokerage house mergers and closures to examine whether financial analysts influence the tax-planning activities of the firms they cover. Using a difference-in-differences design, we find that, on average, firms affected by broker mergers and/or closures experience a reduction in their GAAP (cash) effective tax rates (ETR) of 2.5 percent (2.6 percent), relative to control firms, translating into average tax expense (cash tax) savings of $34 ($35) million."

Our news journalists obtained a quote from the research from the University of California, "The treatment effect is more pronounced among firms with lower pre-event analyst coverage. To explore how analysts affect tax planning, we further document that the treatment effect is greater among firms that lose an analyst who provided an implied ETR forecast in the past, suggesting that analysts influence tax planning via their tax-specific research efforts. In addition, we find that after merger/closure, weakly governed firms increase their use of aggressive tax strategies, and financially distressed firms experience a larger reduction of cash effective tax rates, relative to control firms. Overall, we provide evidence that a shock to analyst coverage sufficiently changes the cost-benefit trade-off of tax planning. Les analystes ont-ils une incidence sur la planification fiscale des societes? Donnees tirees d'une experience naturelle Les auteurs se servent d'un choc exogene auquel est soumis le suivi des analystes a la suite de fusions et de fermetures de societes de courtage pour verifier si les analystes financiers exercent une influence sur les activites de planification fiscale des societes dont ils assurent le suivi. l'aide d'un plan de recherche base sur l'ecart dans les differences, ils constatent qu'en moyenne, les societes touchees par les fusions ou les fermetures de societes de courtage enregistrent une diminution de 2,5pour cent (2,6pour cent) de leur taux d'imposition effectif selon les PCGR (taux d'imposition effectif en tresorerie) par rapport aux societes de controle, ce qui se traduit par des economies de 34millions de dollars (35millions de dollars) au chapitre de la charge d'impots (des impots en tresorerie). L'incidence du traitement par les analystes est plus marquee chez les societes qui retenaient moins l'attention des analystes avant l'evenement. Pour determiner en quoi les analystes exercent une influence sur la planification fiscale, les auteurs recueillent davantage de donnees etablissant que l'incidence du traitement est plus importante chez les societes qui perdent un analyste qui publiait auparavant une prevision de taux d'imposition effectif implicite, ce qui semble indiquer que les analystes exercent une influence sur la planification fiscale par le truchement de leur travail de recherche proprement fiscale. Ils constatent en outre qu'apres une fusion ou une fermeture, les societes dont la gouvernance laisse a desirer ont davantage recours a des strategies fiscales audacieuses et les societes en difficulte financiere enregistrent une diminution plus importante des taux d'imposition effectifs en tresorerie, comparativement aux societes de controle."

According to the news editors, the research concluded: "Globalement, l'etude montre qu'un choc subi par le suivi des analystes modifie suffisamment le compromis couts-avantages de la planification fiscale."

For more information on this research see: Do Analysts Matter for Corporate Tax Planning? Evidence from a Natural Experiment. Contemporary Accounting Research, 2018;35(2):794-829. Contemporary Accounting Research can be contacted at: Wiley, 111 River St, Hoboken 07030-5774, NJ, USA. (Wiley-Blackwell - www.wiley.com/; Contemporary Accounting Research - onlinelibrary.wiley.com/journal/10.1111/(ISSN)1911-3846)

Our news journalists report that additional information may be obtained by contacting T. Shevlin, University of California, Irvine, CA 92717, United States. Additional authors for this research include P.C. Chiu and N.X. Chen.

Keywords for this news article include: Irvine, California, United States, North and Central America, Accounting, University of California.

Our reports deliver fact-based news of research and discoveries from around the world. Copyright 2018, NewsRx LLC