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Analysts’ earnings forecasting behavior surrounding uncertain regulatory events: evidence from the Tax Reform Act of 1986

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  • Jennifer Howard
  • Praveen Sinha

Abstract

This study examines analysts’ forecasting behaviour in the presence of significant tax policy uncertainty. The Tax Reform Act of 1986 (TRA86) was preceded by a lengthy debate, allowing us to investigate how tax policy uncertainty evolves over time. Our results are generally consistent with the intuition that uncertainty precedes the enactment of a proposed tax law while complexity manifests afterwards. Using the repeal of the investment tax credit to identify highly impacted firms, we find that the onset of disagreement among analysts during the debate occurred sooner for highly impacted firms than other firms. We also find that disagreement among analysts was concentrated among highly impacted firms before and after enactment. Given that our sample period precedes Regulation Fair Disclosure, our evidence suggests that analysts relied on private information from management to resolve the uncertainty associated with TRA86 but only for highly impacted firms.

Suggested Citation

  • Jennifer Howard & Praveen Sinha, 2020. "Analysts’ earnings forecasting behavior surrounding uncertain regulatory events: evidence from the Tax Reform Act of 1986," Accounting and Business Research, Taylor & Francis Journals, vol. 50(1), pages 35-60, January.
  • Handle: RePEc:taf:acctbr:v:50:y:2020:i:1:p:35-60
    DOI: 10.1080/00014788.2019.1574548
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    Cited by:

    1. Chung-Cheng Yang & Jianxiong Chen & Wen-Chi Yang, 2021. "The Impact of the Amendment of Taiwan’s Certified Public Accountant Act in 2007 on Large Accounting Firms," Sustainability, MDPI, vol. 13(3), pages 1-22, January.

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