Do Analysts' Cash Flow Forecasts Encourage Managers to Improve the Firm's Cash Flows? Evidence from Tax Planning

Benjamin C. Ayers, Andrew C. Call, Casey M. Schwab

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Recent research finds that analysts' cash flow forecasts have meaningful financial reporting ramifications, but, to date, the identified effects are unlikely to yield meaningful cash flow benefits. This study examines whether analysts' cash flow forecasts encourage managers to enhance the firm's cash flow position through tax avoidance activities. We evaluate the change in cash tax avoidance after analysts begin issuing cash flow forecasts relative to a propensity score matched control sample of firms without cash flow forecasts. Consistent with analysts' cash flow forecasts encouraging tax avoidance that enhances the firm's cash flow health, we find a negative association between cash tax payments and analysts' cash flow coverage. Additional analysis suggests this association is driven primarily by strategies to permanently avoid rather than to temporarily defer tax payments and that increased cash tax avoidance activity represents a nontrivial component of the overall increase in reported operating cash flows after the initiation of analysts' cash flow coverage.

Original languageEnglish (US)
JournalContemporary Accounting Research
DOIs
StateAccepted/In press - Jan 1 2018

Fingerprint

Analysts
Cash flow
Managers
Tax planning
Tax avoidance
Cash
Payment
Tax
Propensity score
Financial reporting
Health
Operating cash flows

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

Cite this

Do Analysts' Cash Flow Forecasts Encourage Managers to Improve the Firm's Cash Flows? Evidence from Tax Planning. / Ayers, Benjamin C.; Call, Andrew C.; Schwab, Casey M.

In: Contemporary Accounting Research, 01.01.2018.

Research output: Contribution to journalArticle

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