The association between SEC comment letter review and analyst ETR forecast accuracy
Ehinger, Anne Christine
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The SEC issues comment letters suggesting revisions to firms’ tax disclosures with the goal of improving the informativeness of these disclosures. I examine if SEC-prompted revisions to firms’ tax disclosures are associated with changes in the informativeness of the disclosures. I use the accuracy of analyst effective tax rate (ETR) forecasts as a proxy for tax disclosure informativeness. I find that SEC-prompted revisions are associated with a decrease in analyst ETR forecast accuracy, indicating a decrease in the informativeness of tax disclosures. However, I find that increased tabular presentation attenuates the decrease in analyst ETR forecast accuracy. Prior literature examines benefits of the SEC comment letter process on the information environment. I extend prior literature on the outcome of SEC comment letter review by identifying reduced tax disclosure informativeness as one potential cost.