The effect of deferment of the tax cut policy on analysts’ forecast: The case of the deferment of 2009 corporate tax rate reduction in Korea

Analysts play a role as an information intermediary between investors and corporations in the capital market. They forecast the future profits and cash flow of companies based on economic indicators and corporate performance indicators. This study seeks to determine whetheror not analysts adjusted their forecasts when the deferment of the corporate tax rate reduction was implemented in 2009. This is because due to the deferment, deferred tax assets increase tax benefits in 2008 and deferred tax liabilities reduce tax costs. Therefore, the 2009 deferment of corporate tax reduction can offer a good opportunity to see how the effects of such deferment are reflected onto corporate forecasts by analysts. The analysis results show that while analysts reflected unexpected profits unto their adjusted forecast of future profits, unexpected cash flow was not reflected. To strengthen the study, a consensus of analysts is used for analysis. This showed that unexpected profits due to deferred corporate tax assets did not affect future profits. This study is meaningful in that it reviewed how changes in corporate tax rates are reflected onto future profit and cash flow forecasts by analysts.