Title page for ETD etd-04162010-104826

Type of Document Dissertation
Author McInerney, Megan Michelle
URN etd-04162010-104826
Title Analyst Coverage and Tax Reporting Aggressiveness
Degree PhD
Department Accounting and Information Systems
Advisory Committee
Advisor Name Title
Salbador, Debra A. Committee Chair
Ince, Ozgur S. Committee Member
Maher, John J. Committee Member
Oler, Mitchell J. Committee Member
Seago, W. Eugene Committee Member
  • analyst coverage
  • financial analyst
  • tax reporting aggressiveness
  • book-tax differences
Date of Defense 2010-04-02
Availability unrestricted
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.

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