TAX LITIGATION AND ANALYST BEHAVIOR: Impacts on optimism, accuracy, and investment recommendations.
Name: MAURÍLIO ARRUDA DE ARAÚJO
Publication date: 11/06/2025
Examining board:
Name |
Role |
|---|---|
| ALFREDO SARLO NETO | Presidente |
| ANTÔNIO LOPO MARTINEZ | Coorientador |
| DONIZETE REINA | Examinador Interno |
| JORGE DE SOUZA BISPO | Examinador Externo |
| RAFAEL CONFETTI GATSIOS | Examinador Externo |
Pages
Summary: This study aimed to investigate whether the uncertainties arising from tax litigation alter the
expectations of financial analysts, based on an average sample of 192 Brazilian publicly traded
companies – listed on B3, in the period from 2009 to 2023. Employing panel data models with
fixed and random effects and Pooled OLS, corroborated by the Hausman, Chow and BreuschPagan tests and analyzing data from renowned sources, such as Comdinheiro, Economatica
and Refinitiv Thomson Reuters Eikon, this study identifies a significant and non-negligible
impact of tax litigation on errors, accuracy and analysts' recommendations regarding earnings
forecasting. In addition, the survey identified that the service sector slightly presents the highest
tax litigation among the economic sectors, while the trade sector presented the lowest;
Companies that reported large losses, on the other hand, tend to have greater tax litigation. It
can be inferred from the results that the uncertainty generated by tax litigation is associated
with a reduction in the optimistic bias of analysts, leading to pessimism/conservatism due to
the perception of risk due to uncertainties and ambiguities in the disclosures of tax
contingencies – presenting a significant increase in accuracy and, consequently, an increase in
forecast error. In addition, it was identified that tax litigation influences the recommendations
for the optimistic aspect, that is, analysts issue optimistic recommendations when including it
in their assessments. Regarding the variations in recommendations over time, it can be seen
that analysts tend to be more pessimistic. These crucial findings underscore the urgent need for
proactive and strategically tuned tax management to improve the accuracy of financial
forecasting, emphasizing the importance of integrating deep tax considerations into financial
and investment strategies. Contributing significantly to the existing literature, this work seeks
to generate new perspectives for future research on effective tax risk management and its
decisive influence on business strategies. In the end. The detailed analysis was able to
demonstrate that tax litigation represents a crucial factor that must be considered in the
assessment of risks and in the formulation of effective financial strategies, aiming to optimize
financial performance and mitigate the associated risks, reinforcing the importance of an
integrated and strategic approach in tax management.
