The Persistence, Forecasting, and Valuation Implications of the Tax Change Component of Earnings

2006 ◽  
Vol 81 (3) ◽  
pp. 589-616 ◽  
Author(s):  
Andrew P. Schmidt
Keyword(s):  
Stock Prices ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Future Earnings ◽  
Reporting Requirements ◽  
Prior Literature ◽  
Change Components

I examine whether earnings generated by changes in effective tax rates (the tax change component) persist and aid in forecasting future earnings. In addition, this study investigates to what extent investors incorporate the forecasting implications of the tax change component of earnings into stock prices. I find that there is a positive, significant association between the tax change component of earnings and future earnings. I use the interim reporting requirements of APB No. 28 (APB 1973) and FASB Interpretation No. 18 (FASB 1977) to further decompose the tax change component into an initial and a revised portion based on the first quarter estimate of the annual effective tax rates (ETR). I find that the initial tax change component is more persistent for future earnings than the revised tax change component. These results are consistent with my hypotheses that the initial and revised tax change components have differential persistence and forecasting implications, and dispute the broad notion advanced by prior literature that ETR-related earnings changes are transitory. Results from market tests indicate that the market underweights the forecasting implications of the tax change component and the mispricing appears to be driven by the transitory nature of the revised tax change component.

Top Management Team Intrapersonal Functional Diversity and Tax Avoidance

2020 ◽  
Author(s):  
James M. Plecnik ◽  
Shan Wang
Keyword(s):  
High Risk ◽  
Functional Diversity ◽  
Work Experience ◽  
Top Management Team ◽  
Tax Avoidance ◽  
Management Team ◽  
Top Management ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Prior Literature

Top management team (TMT) members have been shown to influence tax avoidance; however, prior literature has not identified whether the intrapersonal diversity of TMT functional backgrounds leads to higher levels of tax avoidance. To study this relationship, we utilize TMT intrapersonal functional diversity, which captures the average heterogeneity of the TMT members' work experience. The skills associated with intrapersonal functional diversity may allow managers to better understand and communicate with various parties related to firm tax policies, thereby facilitating tax avoidance. Overall, we find that TMTs with higher levels of intrapersonal functional diversity achieve lower cash effective tax rates and that these TMTs do not rely on tax strategies that pose high risk.

scholarly journals IMPLIKASI KOMPONEN PERUBAHAN PAJAK DALAM LABA TERHADAP PERSISTENSI DAN PERAMALAN STUDI TERHADAP PERUSAHAAN YANG TERDAFTAR DI BEI PERIODE 2010-2013

2018 ◽  
Vol 4 (2) ◽  
Author(s):  
Dewi Kartika Sari ◽  
Birawani Dwi Anggraeni ◽  
Sandra Aulia
Keyword(s):  
Financial Reporting ◽  
Income Tax ◽  
Stock Exchange ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Future Earnings ◽  
Persistent Effect ◽  
Tax Changes

AbstractThis research aims to determine the implications of the tax change component in the income tax to the persistence and forecasting of future earnings, and also comparing the effect of tax changes component in initial earning with the tax change component in revised earnings, in order to know which are more persistent. Using all companies listed in Indonesia Stock Exchange during the year 2010-2013 as the samples, this research showed that the tax change component in income tax empirically proven to have a persistent effect on future earnings. And compared with tax change component in initial earnings, value of tax change component in revised earnings are better and persistent in forecast earnings.Keyword;Earning persistence, effective tax rates, interim financial reporting.

A Study of Perceived Ethicality of Low Corporate Effective Tax Rates

2017 ◽  
Vol 32 (1) ◽  
pp. 87-104 ◽  
Author(s):  
F. Todd DeZoort ◽  
Troy J. Pollard ◽  
Edward J. Schnee
Keyword(s):  
Mediation Analysis ◽  
General Public ◽  
Tax Avoidance ◽  
Tax Rates ◽  
Perceived Fairness ◽  
Effective Tax Rate ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Policy Practice ◽  
Participant Group

SYNOPSIS U.S. corporations have the ability to avoid paying domestic taxes to achieve an effective tax rate that is much lower than the statutory federal tax rate. This study evaluates the extent that individuals differ in their attitudes about the ethicality of corporations avoiding domestic taxes to achieve low effective tax rates. We also examine the extent to which the specific tax avoidance method used by corporations to access a low effective tax rate affects perceived ethicality. Eighty-two members of the general public and 112 accountants participated in an experiment with two participant groups and three tax avoidance methods manipulated randomly between subjects. The results indicate a significant interaction between participant group and tax avoidance method, with the general public considering shifting profits out of the country to achieve a low effective tax rate to be highly unethical, while the accountants find tax avoidance from carrying forward prior operating losses to be highly ethical. Further, mediation analysis indicates that perceived fairness and legality mediate the effects of participant type on perceived ethicality. Mediation analysis also reveals that sense of fairness and legality mediate the link between tax avoidance method and perceived ethicality. We conclude by considering the study's policy, practice, and research implications.

An Examination of Reputational Costs and Tax Avoidance: Evidence from Firms with Valuable Consumer Brands

2017 ◽  
Vol 39 (1) ◽  
pp. 67-93 ◽  
Author(s):  
Chelsea Rae Austin ◽  
Ryan J. Wilson
Keyword(s):  
Tax Avoidance ◽  
Tax Rates ◽  
Effective Tax Rates ◽  
Reputational Costs

ABSTRACT We expect firms with the greatest exposure to reputational damage among consumers will engage in lower levels of tax avoidance to minimize unwanted scrutiny that could impair the firms' reputation. We identify a set of firms with valuable consumer reputation using Harris Interactive's EquiTrend survey, which surveys consumers about their perceptions of valuable and prominent brands. We find evidence in support of our hypothesis that firms with valuable brands will engage in less tax avoidance. Specifically, we find a positive and significant association between our measure of reputation and both the GAAP and cash effective tax rates (measured over one and three years). We find mixed evidence on whether there is a negative and significant association between reputation and the probability the firm is engaging in tax sheltering.

Retroactive Tax Legislation, Reported Earnings, and Investors' Responses to Earnings “Surprises”: Evidence from R&D Credit Extensions

2016 ◽  
Vol 38 (2) ◽  
pp. 87-109 ◽  
Author(s):  
Brian Bratten ◽  
David S. Hulse
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Unintended Consequences ◽  
Data Availability ◽  
Substantial Part ◽  
Tax Rates ◽  
Financial Reporting Standards ◽  
Average Decrease ◽  
Tax Legislation ◽  
Reported Earnings

ABSTRACT When Congress retroactively extends a temporary tax rule, the effect on earnings is complex because financial reporting standards require firms to apply the integral method using enacted tax law to determine quarterly income tax expense. We model this effect and examine earnings announcements following retroactive extensions of the federal R&D tax credit to test how investors incorporate the effect into stock prices. We find that investors respond when earnings are announced, even though the effect could have been determined several weeks earlier. We also show that in recent years, the effects of retroactive extensions of the credit are a substantial part of the average decrease in effective tax rates (ETRs) from the third to fourth quarter for calendar-year firms. Our results have implications for investors and researchers examining earnings and ETRs around retroactive extensions of temporary tax rules and suggest that congressional delays and GAAP interact to produce unintended consequences. JEL Classifications: M41; M48; G14; H25. Data Availability: Data used in this study are available from the sources identified in the text.

A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Stacie K. Laplante ◽  
Carla Carnaghan
Keyword(s):  
Tax Planning ◽  
Investment Model ◽  
Income Shifting ◽  
Tax Rates ◽  
Foreign Investments ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Joint Consideration ◽  
The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

EFFECTIVE TAX RATES FROM FINANCIAL STATEMENTS

1986 ◽  
Vol 39 (3) ◽  
pp. 293-306
Author(s):  
GILLIAN M. SPOONER
Keyword(s):  
Financial Statements ◽  
Tax Rates ◽  
Effective Tax Rates
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