Forecasting taxes: New evidence from analysts

Brian Bratten, Cristi A. Gleason, Stephannie A. Larocque, Lillian F. Mills

Research output: Contribution to journalArticlepeer-review

64 Scopus citations


We provide new evidence about how analysts incorporate and improve on management ETR forecasts. Quarterly ETR reporting under the integral method provides mandatory point-estimate forecasts by management, but firms must record certain "discrete" tax items fully in the quarter in which they occur, polluting these forecasts. We investigate management ETR accuracy, analysts' decisions to mimic management's estimate, analysts' accuracy relative to each other or to management, and dispersion. Our comprehensive analysis reveals that analysts deviate from management more and are more accurate relative to management as complexity increases, with real effects on EPS accuracy and dispersion. In contrast to prior research that analysts ignore or are confused by taxes, we provide evidence that analysts pay attention to taxes and improve on management estimates. Based on our evidence that management's quarterly ETRs have less predictive value in the presence of discrete items, we suggest standard-setters reexamine the discrete item exception to require more disclosure.

Original languageEnglish
Pages (from-to)1-29
Number of pages29
JournalAccounting Review
Issue number3
StatePublished - May 2017


  • Analysts
  • Discrete items
  • ETRs
  • Forecasts
  • Integral method
  • Taxes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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