Analyst Coverage and Tax Reporting Aggressiveness

The role of analysts in corporate governance has been examined extensively in the accounting literature. Two conflicting representations of the influence of analysts have emerged. Analysts are either viewed as external monitors of corporate behavior, thereby reducing agency costs; or they are viewed as exerting additional pressure on management to meet earnings forecasts, which may contribute to aggressive corporate behavior. Studies exist that examine the impact of analyst coverage in a financial reporting context. The purpose of this study is to examine the role of analysts in the corporate tax reporting context. This dissertation examines the impact of analyst coverage on corporate tax aggressiveness using a cross-section of publicly traded firms between 1992 and 2006. Permanent discretionary book-tax differences are used to proxy for tax aggressiveness. The relation is examined using ordinary least squares regression as well as two-stage least squares regression using expected coverage and inclusion in the S&P 500 index as instrumented variables to account for the endogeneity of analyst coverage selections. Additional analyses investigate the impact of analyst characteristics: experience as an analyst, experience covering a specific firm and identification as a top analyst. Results indicate that analyst coverage is associated with lower levels of tax aggressiveness. This finding suggests that analysts serve as external monitors of corporate tax behavior. In addition, more experienced analysts are associated with lower levels of tax aggressiveness indicating an improvement in monitoring ability with experience. Analysts identified as All-American analysts by Institutional Investor magazine are associated with higher levels of tax aggressiveness. This result suggests that top analysts may view aggressive tax behavior as a wealth creation tool for firms.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Accounting and Information Systems

Department dc:contributor.department

Accounting and Information Systems

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

2010

Author dc:creator

• McInerney, Megan Michelle

Chair dc:contributor.committeechair

• Salbador, Debra A.

Committee members dc:contributor.committeemember

• Maher, John J.
• Ince, Ozgur S.
• Seago, W. Eugene
• Oler, Mitchell J.

• tax reporting aggressiveness
• financial analyst
• analyst coverage
• book-tax differences

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

etd-04162010-104826

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/37634