The relationship among the Profit-seeking Enterprise Income Tax Rate and book-tax differences has been a highly concerned issue, especially for academic re-searchers and tax authorities. Weber (2006, 2009) analyzes the relation between book-tax differences and analysts’ forecast errors, believing that a company with larger book-tax differences will increase the possibility of forecast errors by analysts. Therefore, this study is aimed to probe whether the Profit-seeking Enterprise Income Tax Rate decrease affects book-tax difference, whether book-tax difference influences analysts’ forecast errors, and what the impact of Profit-seeking Enterprise Income Tax Rate de-crease is on book-tax difference as well as on analysts’ forecast errors.
Our empirical results show that Profit-seeking Enterprise Income Tax Rate decrease and book-tax difference demonstrate a significant negative correlation, that is, Profit-seeking Enterprise Income Tax Rate decrease will reduce book-tax difference of a company. Book-tax difference and analysts’ forecast error are in significant positive correlation; that is, the higher book-tax difference is, the greater the analysts’ forecast error is. After the Profit-seeking Enterprise Income Tax Rate decrease, book-tax differ-ence and analysts’ forecast error are in significant negative correlation. It means that the Profit-seeking Enterprise Income Tax Rate decrease will reduce book-tax difference of a company and further reduce analysts’ forecast error. Empirical findings do support our research hypothesis.
