Interim Income Tax Data and Earnings Prediction

28 Pages Posted: 18 Apr 2002

See all articles by Mark P. Bauman

Mark P. Bauman

University of Northern Iowa

Kenneth W. Shaw

University of Missouri at Columbia - School of Accountancy

Date Written: March 2002

Abstract

This study examines the usefulness of interim income tax disclosures in predicting future earnings and analysts' forecast errors. The integral view of interim financial reporting requires managers to make their best estimate of the effective income tax rate expected to be in effect for the year. Thus, the effective tax rate disclosed in the first quarter's Form 10-Q potentially provides some private information regarding management's expectations for forthcoming earnings. Our analyses show that these interim tax rate disclosures are useful in predicting future earnings and, in addition, are positively related to analysts' forecast errors. The results suggest analysts underutilize effective tax rate information in interim disclosures that could be used to improve the accuracy of their earnings forecasts.

Keywords: Income taxes, Earnings forecasts

JEL Classification: M41, G29

Suggested Citation

Bauman, Mark P. and Shaw, Kenneth W., Interim Income Tax Data and Earnings Prediction (March 2002). Available at SSRN: https://ssrn.com/abstract=305704 or http://dx.doi.org/10.2139/ssrn.305704

Mark P. Bauman (Contact Author)

University of Northern Iowa ( email )

Cedar Falls, IA 50614
United States
319-273-4323 (Phone)

Kenneth W. Shaw

University of Missouri at Columbia - School of Accountancy ( email )

420 Cornell Hall
Columbia, MO 65211
United States
573-882-5939 (Phone)
573-882-2437 (Fax)

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