Tax Specific versus Generic Accounting-Based Textual Analysis and the Relationship with Effective Tax Rates: Building “Context”

What is it about?

We build context for bags of words text analysis by building a tax dictionary and focusing on information in the tax portions of the Form 10K. We build three mutually exclusive dictionaries based on tax events and terms for text analysis. One dictionary had terms that related to positive tax events, one with negative tax events and one with tax haven information. We gather the counts of those dictionary words from the tax portion of the 10K. Then we relate those counts to the expected tax rates (ETR). We also relate the counts from generic accounting dictionaries to ETR. We find that both our dictionaries and the general accounting dictionaries provide information to the ETR beyond quantitative variables.

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