ABSTRACT The perception exists that offshore activities have negative consequences for both companies and society. Prior research and practice suggest that such activities may undermine tax fairness, widen economic inequality, and facilitate illegal activities. This paper examines the impact of offshore activities on analysts’ earnings forecasts. Analysts play a crucial intermediary role in capital markets as sophisticated users of financial information. Using a novel dataset, we analyze offshore activities of publicly listed U.S. firms across all countries, distinguishing among overall offshore, input, and output activities. We find that offshore activities increase forecast errors, dispersion, and result in more rounding. These effects are more pronounced for firms with operations in tax havens and countries characterized by weak rule of law. This study contributes to the literature by providing new evidence on how offshore activities affect market participants’ decision-making. Data Availability: All data used in this paper are publicly available from the sources stated in the paper. JEL Classifications: G14; M14; M4.
Sun et al. (Sun,) studied this question.