Are Analyst Free Cash Flow Forecasts Valuable Evidence From Target Price Changes PDF Download
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| Author | : Andreas Markou |
| Publisher | : |
| Total Pages | : 68 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Are Analyst Free Cash Flow Forecasts Valuable? Evidence from Target Price Changes Book in PDF, ePub and Kindle
We examine the value of analyst Free Cash Flow (FCF) forecasts in the context of target price changes. We argue that investors can use FCF forecasts to distinguish between FCF based target price changes and less informative target price changes primarily driven by discount rate, long term growth rate and unpublished FCF forecast changes (NON FCF changes). We show empirically that FCF based target price changes have on average 27-54% stronger initial price reactions than NON FCF based target price changes. We find that this differential price reaction is not driven by analyst reputational concerns but by analysts signalling their conviction on the company's future fundamentals. Specifically, the analyst decision to issue a FCF based target price is related to momentum, to company earnings exceeding consensus forecast and to the company recently having announced earnings results. Further, we find that a long-short portfolio strategy that trades only on FCF based target price changes earns higher average abnormal returns of 87 basis points for the three day initial event period, compared to a portfolio that trades on all target price changes.
| Author | : Noor Hashim |
| Publisher | : |
| Total Pages | : 49 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
Download Do Analysts' Cash Flow Forecasts Improve the Accuracy of Their Target Prices? Book in PDF, ePub and Kindle
Current evidence on the sophistication of analysts' cash flow forecasts is ambiguous. For example, Call et al. (2009) show that issuing cash flow forecasts has important benefits for analysts' earnings forecasts, while Givoly et al. (2009) question the validity of this result, arguing that analysts' cash flow forecasts are simple extrapolations of their earnings forecasts and provide limited incremental information. More recently, Mohanram (2014) and Radhakrishnan and Wu (2014) show that the increasing incidence of cash flow forecasts has helped mitigate accruals mispricing. We contribute to the debate on the usefulness of analysts' cash flow forecasts and their effect on capital market outcomes by examining whether cash flow forecasts have incremental benefits over earnings for analysts' valuation outcomes. We find that analysts who are better at forecasting cash flows are better at forecasting target prices, even after controlling for the quality of their earnings forecasts. Our study provides confirmatory evidence on the sophistication of analysts' cash flow forecasts.
| Author | : Noor Hashim |
| Publisher | : |
| Total Pages | : |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
Download Three Essays on Analyst Target Prices Book in PDF, ePub and Kindle
This thesis presents three essays on analyst target prices. The essays contribute to the major debate on the value of analyst target prices in the capital market by addressing the following three questions: Does a bull-bear valuation analysis increase the accuracy of analysts' target prices? Does analyst ranking affect how informative target prices are to institutional investors? And, do analysts use their cash flow forecasts when setting target prices?In the first essay, I explore whether conducting a bull-bear analysis (BBA) increases target price accuracy. A bull-bear analysis is a risk assessment tool that analysts use to enhance the credibility of their valuations and limit target price uncertainty. Using propensity score matching to control for selection bias, combined with a difference-in-differences estimation to allow for company- and analyst-specific effects, I estimate the effect of supplementing target prices with a BBA on the target price accuracy of US stocks during 2008-2009. The results suggest that target prices are more accurate when analysts supplement them with a BBA. The findings contribute to the literature exploring the determinants of analyst ability to produce accurate target prices. The second essay examines whether analyst ranking status affects institutional investors' decisions to incorporate target price information into their investment strategies. Evidence shows that market participants value analyst target prices. There is limited evidence, however, on how target price revisions influence the decisions of sophisticated investors. The examination of this study is relevant for the economic question: Does analyst reputation mitigate or exacerbate the conflicts of interest that analysts face? Consistent with institutional investor trades being based on superior information, I observe differences in the information content of target price revisions by star and non-star analysts. Additionally, a duration analysis shows that the quality of analyst target price revisions significantly increases the hazard of analysts losing their star ranking. In the final essay, I examine whether analysts' decisions to issue cash flow forecasts depend endogenously on their decision to use these forecasts to set target prices. Using an endogenous switching regression model, with analyst report regimes of disclosure and non-disclosure of cash flow forecasts, I find that cash flow revisions are more important than earnings revisions in explaining the magnitude of target price revisions in the cash flow disclosure regime. Cash flow forecasts influence and are influenced by analyst valuation choices. Additional analysis shows that cash flow-based pseudo-target prices play a greater role in explaining target price implied returns than do earnings-based pseudo-target prices. These findings provide insights into analysts' valuation decision processes and their sophisticated valuation input choices.
| Author | : Sung Hwan Jung |
| Publisher | : |
| Total Pages | : 48 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Are Analysts' Cash Flow Forecasts Useful? Book in PDF, ePub and Kindle
This study provides evidence that the cost of equity capital decreases with the number of analysts who issue both cash flow and earnings forecasts (cash analysts). The evidence also shows that cash analysts reduce information asymmetry and predict long-term earnings more accurately than analysts who issue only earnings forecasts. Taken together, these findings suggest that cash analysts provide market participants with high-quality information and, as a result, firms benefit from cash analyst coverage in the form of a reduced cost of equity capital.
| Author | : Aswath Damodaran |
| Publisher | : Now Publishers Inc |
| Total Pages | : 102 |
| Release | : 2005 |
| Genre | : Business & Economics |
| ISBN | : 1601980140 |
Download Valuation Approaches and Metrics Book in PDF, ePub and Kindle
Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.
| Author | : Benjamin C. Ayers |
| Publisher | : |
| Total Pages | : 48 |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
Download Do Analysts' Cash Flow Forecasts Encourage Managers to Enhance Real Cash Flows? Evidence from Tax Planning Book in PDF, ePub and Kindle
Recent research finds that analysts' cash flow forecasts have meaningful financial reporting ramifications, but to date, the identified effects are unlikely to yield meaningful cash flow benefits. This study examines whether analysts' cash flow forecasts encourage managers to enhance the firm's cash flow position through tax avoidance activities. We evaluate the change in cash tax avoidance after analysts begin issuing cash flow forecasts relative to a propensity-score matched control sample without cash flow forecasts. Consistent with analysts' cash flow forecasts encouraging tax avoidance that enhances real cash flows, we find a negative association between cash effective tax rates and analysts' cash flow coverage. Additional analysis suggests this association is driven both by strategies to permanently avoid and to defer tax payments, and that increased cash tax avoidance activity represents a significant component of the overall increase in reported operating cash flows after the initiation of analysts' cash flow coverage.
| Author | : Yasuyuki Fuchita |
| Publisher | : Brookings Institution Press |
| Total Pages | : 216 |
| Release | : 2007-02-01 |
| Genre | : Business & Economics |
| ISBN | : 0815729820 |
Download Financial Gatekeepers Book in PDF, ePub and Kindle
A Brookings Institution Press and Nomura Institute of Capital Markets Research publication Developed country capital markets have devised a set of institutions and actors to help provide investors with timely and accurate information they need to make informed investment decisions. These actors have become known as "financial gatekeepers" and include auditors, financial analysts, and credit rating agencies. Corporate financial reporting scandals in the United States and elsewhere in recent years, however, have called into question the sufficiency of the legal framework governing these gatekeepers. Policymakers have since responded by imposing a series of new obligations, restrictions, and punishments—all with the purpose of strengthening investor confidence in these important actors. Financial Gatekeepers provides an in-depth look at these new frameworks, especially in the United States and Japan. How have they worked? Are further refinements appropriate? These are among the questions addressed in this timely and important volume. Contributors include Leslie Boni (University of New Mexico), Barry Bosworth (Brookings Institution), Tomoo Inoue (Seikei University), Zoe-Vonna Palmrose (University of Southern California), Frank Partnoy (University of San Diego School of Law), George Perry (Brookings Institution), Justin Pettit (UBS), Paul Stevens (Investment Company Institute), Peter Wallison (American Enterprise Institute).
| Author | : Andrew C. Call |
| Publisher | : |
| Total Pages | : 52 |
| Release | : 2009 |
| Genre | : |
| ISBN | : |
Download Analysts' Cash Flow Forecasts and the Predictive Ability and Pricing of Operating Cash Flows Book in PDF, ePub and Kindle
I examine the association between analysts' cash flow forecasts and the predictive ability and pricing of operating cash flows. I argue that when analysts issue cash flow forecasts, they serve a monitoring role over the firm's reported cash flow information. Consistent with this idea, I find the ability of current cash flows to predict future cash flows is greater for firms whose analysts issue cash flow forecasts, and improves when analysts begin forecasting cash flows, suggesting analysts' cash flow forecasts discipline managers to report cash flow information that is more informative about future firm prospects. Furthermore, I find the incremental weight investors assign to operating cash flows is greater for firms with a cash flow forecast than for firms without a cash flow forecast, and increases in the years immediately after analysts begin issuing cash flow forecasts. As a result, the anomalous underpricing of operating cash flows is eliminated for firms whose analysts issue cash flow forecasts. These results suggest analysts' cash flow forecasts have implications for both the reporting and pricing of cash flow information.
| Author | : Ramesh Narayana Chari |
| Publisher | : |
| Total Pages | : 140 |
| Release | : 1998 |
| Genre | : |
| ISBN | : |
Download Analysts' Use of Accruals and Cash Flows in Forecasting Earnings Book in PDF, ePub and Kindle
This research investigates whether financial analysts fully incorporate the information contained in accrual and cash flow components of current earnings when forecasting future earnings. I present evidence that analysts fail to fully incorporate the implications of these components for earnings persistence in their forecasts. Analysts' appear to ignore information in past earnings to a greater extent when the magnitude of accruals in prior year earnings is large relative to cash flows. I find that information in these components can be used to improve analysts' forecasts. This improvement is most evident for firms which have a high incidence of accruals in prior year earnings. I demonstrate the economic significance of improving analysts' forecasts by implementing a trading strategy that predicts stock price changes. This trading strategy yields significantly positive risk-adjusted abnormal returns. These results suggest that analysts' forecasting inefficiency (see Mendenhall, 1991) is potentially rooted in their misperceptions about the implications of accruals and cash flows for earnings persistence. These findings are useful to accounting standard-setters and to capital markets research that uses analysts' forecasts to proxy for earnings expectations.
| Author | : Peter Easton |
| Publisher | : Now Publishers Inc |
| Total Pages | : 148 |
| Release | : 2009 |
| Genre | : Business & Economics |
| ISBN | : 1601981945 |
Download Estimating the Cost of Capital Implied by Market Prices and Accounting Data Book in PDF, ePub and Kindle
Estimating the Cost of Capital Implied by Market Prices and Accounting Data focuses on estimating the expected rate of return implied by market prices, summary accounting numbers, and forecasts of earnings and dividends. Estimates of the expected rate of return, often used as proxies for the cost of capital, are obtained by inverting accounting-based valuation models. The author describes accounting-based valuation models and discusses how these models have been used, and how they may be used, to obtain estimates of the cost of capital. The practical appeal of accounting-based valuation models is that they focus on the two variables that are commonly at the heart of valuations carried out by equity analysts -- forecasts of earnings and forecasts of earnings growth. The question at the core of this monograph is -- How can these forecasts be used to obtain an estimate of the cost of capital? The author examines the empirical validity of the estimates based on these forecasts and explores ways to improve these estimates. In addition, this monograph details a method for isolating the effect of any factor of interest (such as cross-listing, fraud, disclosure quality, taxes, analyst following, accounting standards, etc.) on the cost of capital. If you are interested in understanding the academic literature on accounting-based estimates of expected rate of return this monograph is for you. Estimating the Cost of Capital Implied by Market Prices and Accounting Data provides a foundation for a deeper comprehension of this literature and will give a jump start to those who have an interest in these topics. The key ideas are introduced via examples based on actual forecasts, accounting information, and market prices for listed firms, and the numerical examples are based on sound algebraic relations.
