Are Analysts Cash Flow Forecasts Associated With Improved Earnings Quality Australian Evidence PDF Download
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Author | : Jeffrey Coulton |
Publisher | : |
Total Pages | : 29 |
Release | : 2019 |
Genre | : |
ISBN | : |
Download Are Analysts' Cash Flow Forecasts Associated with Improved Earnings Quality? Australian Evidence Book in PDF, ePub and Kindle
We investigate the extent to which the provision by sell side analysts of cash flow forecasts incremental to earnings forecasts has an impact on the quality of Australian firms' financial reporting. Using two separate and distinct indicators of earnings quality, we consistently fail to find evidence of any improvement in the quality of financial reporting following analysts' provision of cash flow forecasts. Our results contrast with the argument by Healy and Palepu (2001) that sell side analysts play an important role in monitoring the quality of financial reporting but are consistent with the claim that sell side analysts' cash flow forecasts lack sophistication (Givoly et al. 2009).
Author | : Yi Wu |
Publisher | : |
Total Pages | : 0 |
Release | : 2014 |
Genre | : Accounting firms |
ISBN | : |
Download Audit Firm Industry Specialisation and Analyst Forecast Accuracy Book in PDF, ePub and Kindle
My thesis examines whether the extent to which audit firms concentrate their business in particular industries ('audit firm industry specialisation') improves the usefulness of published financial reports for analysts' predictions of future earnings, and whether the strength of any observed association varies in a manner consistent with the existence of a causal relationship between audit quality and analyst forecast accuracy. Prior research presents diametrically opposite predictions and results regarding the directional relationship between audit firm industry specialisation and analyst forecast accuracy. My thesis shows that the conflicting results in the literature arise largely from prior studies' focus on short-horizon (end-of-year) forecast accuracy, which is subject to competing effects related to audit quality, and which in turn renders the resulting empirical models highly sensitive to model specification. I argue that analyst long-horizon (beginning-of-year) forecast accuracy is a more direct measure of the usefulness of published earnings for the prediction of future performance, and demonstrate that regressions using this metric consistently report a significant positive relation between audit firm industry specialisation and forecast accuracy. I then examine whether the observed positive association between audit firm industry specialisation and forecast accuracy varies with factors argued to reflect the relative importance of audit quality to the predictability of earnings. First, I show that the impact of audit firm industry specialisation on forecast accuracy increases with the underlying riskiness of clients' operations (proxied by cash flow volatility and innate accrual quality). I then argue that audit firm industry specialisation should have a greater impact on the forecast accuracy of lower-quality analysts (where quality is proxied by experience, employer size, 'All-Star' status and composite measures), who rely relatively heavily on published earnings when generating forecasts. To this end, I present evidence that audit firm industry specialisation has a greater impact on forecast accuracy for: (1) firm-years where the average 'quality' of analysts covering the firm is lower, and (2) for forecasts issued by individual analysts of lower quality. My results are robust to the use of controls for the endogenous selection of industry specialist auditors. In sum, my study presents evidence that greater audit quality does improve the usefulness of financial statements for the prediction of future earnings.
Author | : Dan Givoly |
Publisher | : |
Total Pages | : 49 |
Release | : 2008 |
Genre | : |
ISBN | : |
Download The Quality of Analysts' Cash Flow Forecasts Book in PDF, ePub and Kindle
This paper examines properties of analysts' cash flow forecasts and compares these properties with those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are of a considerable lower quality than their earnings forecasts. They are less accurate and improve at a slower rate during the forecast period. Further, analysts' cash flow forecasts appear to be, in essence, a naiuml;ve extension of their earnings forecasts and provide no incremental information on expected changes in firms' working capital. Consistent with their low quality and in contrast to their earnings forecasts, analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock price movements. Finally, a measure of expected accruals based on the difference between analysts' earnings and cash flow forecasts has a very low power in detecting earnings management.
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 | : 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 | : Choong-Yuel Yoo |
Publisher | : |
Total Pages | : 204 |
Release | : 2009 |
Genre | : |
ISBN | : |
Download Analysts' Selective Provisions of Cash Flow Forecasts Between Good and Bad News Earnings Forecasts Book in PDF, ePub and Kindle
In this thesis, I examine the factors associated with analysts' voluntary practice of issuing cash flow forecasts and earnings forecasts on the same day. I draw on Hughes and Pae's (2004) management partial disclosure equilibrium and predict how an analyst decides to issue a cash flow forecast revision along with and according to her bad news and good news earnings forecast revision. In particular, I predict that analysts strategically choose to supplement earnings forecasts with positive cash flow news when they deliver bad news earnings forecasts. Consistent with my prediction, I find that analysts are more likely to issue cash flow forecast revisions in the opposite direction to their earnings forecast revisions when they issue downward earnings forecast revisions than when they issue upward earnings forecast revisions. The results suggest that analysts may not make their decisions to issue cash flow forecasts as objectively as they ought to do in their role as independent information intermediaries. Rather, analyst decisions to issue cash flow forecasts are akin to managers' strategic decisions to voluntarily disclose supplemental information to affect investors' confidence in their primary news (earnings forecasts).
Author | : Luzi Hail |
Publisher | : |
Total Pages | : 26 |
Release | : 2011 |
Genre | : |
ISBN | : |
Download Discussion of Investor Protection and Analysts' Cash Flow Forecasts Around the World Book in PDF, ePub and Kindle
DeFond and Hung (2007) test the conjecture whether financial analysts, due to demand-side pressure, compensate for the limited usefulness of reported earnings by issuing cash flow forecasts. They find that analysts supplement their earnings forecasts more frequently with cash flow forecasts in countries where antidirector rights and legal enforcement quality are poor. In my discussion, I examine their hypothesis development and empirical research design and try to extend their arguments to a time-series setting. As it turns out, the paper's main contention critically hinges on two assumptions: (1) investors' unsatisfied demand for accounting information and (2) their willingness to rely on cash flow forecasts as valuable information signals. The descriptive validity of these assumptions in an international context is a priori not obvious. I then test whether substantial changes in investor protection and/or earnings quality relate to changes in the frequency of cash flow forecasts. My analyses show that analysts' propensity to issue cash flow forecasts increases after the first prosecution under insider trading laws, after non-U.S. firms have cross-listed their shares on a U.S. exchange, or after firms have voluntarily replaced their domestic accounting standards with IFRS or U.S. GAAP. Thus, I conclude that the reasoning behind the levels results does not simply extend to a changes setting.
Author | : Elizabeth A. Gordon |
Publisher | : |
Total Pages | : |
Release | : 2014 |
Genre | : |
ISBN | : |
Download Do Analysts' Cash Flow Forecasts Mitigate the Accrual Anomaly? International Evidence Book in PDF, ePub and Kindle
We investigate the role of analysts' cash flow forecasts in mitigating the accrual anomaly in an international setting. Based on a sample from 20 world market economies, we find less market overestimation of the accrual component of earnings for firms where analysts issue both cash flow forecasts and earnings forecasts, compared with firms where analysts only issue earnings forecasts. Further tests show that analysts' provisions of cash flow forecasts are more likely to be a mechanism that attenuates investors' fixations on earnings in common law countries as opposed to code law countries. This finding is consistent with cash flow predictions by analysts being useful in countries where public disclosures are the primary communication channels in the capital markets. We also find the accrual anomaly to be less severe when analysts provide more accurate cash flow forecasts in common law countries. Our results are robust to additional sensitivity tests, including controlling for potential sample selection bias and an endogeneity bias.
Author | : Jeff Coulton |
Publisher | : |
Total Pages | : |
Release | : 2016-11-24 |
Genre | : |
ISBN | : 9780994369734 |
Download The RISE and RISE of NON-GAAP DISCLOSURE Book in PDF, ePub and Kindle
Author | : Patricia M. Dechow |
Publisher | : Research Foundation of the Institute of Chartered Financial Analysts |
Total Pages | : 152 |
Release | : 2004-01-01 |
Genre | : Corporate profits |
ISBN | : 9780943205687 |
Download Earnings Quality Book in PDF, ePub and Kindle