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

A growing literature, typically using “bags of words” dictionaries, examines the information content of text in financial accounting disclosures. We generate context for our text analysis to help predict effective tax rates using two approaches. First, we create tax-specific, expert-derived, dictionaries and, second, we generate the counts for those bags of words using text taken from tax-related discussions of the Form 10-K, as opposed to its...