NDLI: Evidence of differing market responses to beating analysts’ targets through tax expense decreases

Content Provider	Springer Nature Link
Author	Gleason, Cristi A. Mills, Lillian F.
Copyright Year	2008
Abstract	Returns are positive when firms meet or beat analysts’ consensus forecasts, but negative when firms miss. Prior research finds little substantial discount for managing earnings to beat the forecasts via accruals generally. We consider whether the market reward for beating the forecast is smaller when firms use tax expense decreases, which are visible and transparent at the earnings announcement date, unlike accruals. When firms beat analysts’ forecasts by decreasing their tax expense relative to the third-quarter rate, the market discounts the reward by an economically significant amount: approximately 86%. We document lower persistence of current-year tax changes for those firms that decrease tax expense to beat the target. The observed discount for beating the forecast only because of a third to fourth quarter tax decrease may reflect market perceptions of the lack of persistence of the decrease.
Starting Page	295
Ending Page	318
Page Count	24
File Format	PDF
ISSN	13806653
Journal	Review of Accounting Studies
Volume Number	13
Issue Number	2-3
e-ISSN	15737136
Language	English
Publisher	Springer US
Publisher Date	2008-01-25
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Earnings management Effective tax rate Earnings surprise Public Finance & Economics Finance /Banking Accounting/Auditing
Content Type	Text
Resource Type	Article
Subject	Accounting

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
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Evidence of differing market responses to beating analysts’ targets through tax expense decreases