Do Analysts Cash Flow Forecasts Mitigate The Accrual Anomaly International Evidence PDF Download
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| 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 | : Partha S. Mohanram |
| Publisher | : |
| Total Pages | : 57 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Analysts' Cash Flow Forecasts and the Decline of the Accruals Anomaly Book in PDF, ePub and Kindle
The accruals anomaly, demonstrated by Sloan (1996), generated significant excess returns consistently for over four decades until 2002, but has apparently weakened in the subsequent period. In this paper, I argue that one factor responsible for this decline is the increasing incidence of analysts' cash flow forecasts that provides markets with forecasts of future accruals. The negative relationship between accruals and future returns is significantly weaker in the presence of cash flow forecasts. This anomalous relationship becomes weaker with the initiation cash flow forecasts but continues after cash flow forecasts are terminated. Further, the mitigating effect of cash flow forecasts is greater for forecasts that are more accurate. The results are incremental to explanations based on the improved accrual quality, reduced manipulation of special items and restructuring charges and greater investment in accruals strategies by hedge funds and highlight the increasing importance of analysts' cash flow forecasts in the appropriate valuation of stocks.
| Author | : Shu-Ling Wu |
| Publisher | : |
| Total Pages | : 178 |
| Release | : 2011 |
| Genre | : Budget analysts |
| ISBN | : |
Download Analysts' Cash Flow Forecasts and Accrual Mispricing Book in PDF, ePub and Kindle
This study investigates whether or not the incidence of analysts' cash flow forecasts mitigates the accrual anomaly. I employ an accrual-based trading strategy hedge return test and a regression-based test to compare the accrual anomaly for a group of firms whose analysts provide both cash flow forecasts and earnings forecasts, and for a group of firms whose analysts provide only earnings forecasts. The results show that the accrual-based trading strategy yields no positive hedge returns for firms with cash flow forecasts, while it results in a hedge return of eight percent for firms without cash flow forecasts. The results suggest that analysts' cash flow forecasts can redirect investors' attention to the accrual components of earnings and attenuate the accrual anomaly documented in the prior literature.
| Author | : Nikolay Draganov |
| Publisher | : GRIN Verlag |
| Total Pages | : 62 |
| Release | : 2021-08-10 |
| Genre | : Business & Economics |
| ISBN | : 3346463400 |
Download The usefulness of accounting measures in predicting future cash flow Book in PDF, ePub and Kindle
Master's Thesis from the year 2021 in the subject Business economics - Accounting and Taxes, grade: 1,0, University of Cologne, language: English, abstract: The primary aim of this study is to empirically examine the relative ability of accounting earnings and cash flow to predict future cash flow. Moreover, the role of accruals in cash flow predictions is called into question. One of the major purposes of financial reporting consists in ensuring an informational basis that helps investors, creditors and other users of accounting data to overcome the uncertainty associated with the future cash flows of enterprises their financial activity relates to. At the same time, the accrual concept prevails in modern accounting, since it is theorized to mitigate the mismatching and timing problems of the unrefined cash ba-sis accounting. Hence, recognizing revenues and expenses in the period when they have occurred, and not when cash was received or paid out, should create a more relevant framework for decision making. The use of accrual accounting earnings as a summary measure of financial performance instead of the more primitive cash flows is therefore advocated by accounting standard setters. For instance, the Financial Accounting Stand-ard Board claims that: “Information about enterprise earnings and its components measured by accrual accounting generally provides a better indica-tion of enterprise performance than information about current cash receipts and pay-ments”. The FASB’s statement led to a rising discussion in the financial research on whether accounting earnings provide a more reliable picture of a company’s future operating cash flows than current operating cash flows themselves do. Hence, a major implication of the above quotation refers to the incremental power of accruals and its components in predicting future cash flows beyond the one contained into current operating cash flows. This debate represents a cornerstone in evaluating the information quality offered by the accrual accounting concept.
| 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 | : Anwer S. Ahmed |
| Publisher | : |
| Total Pages | : 38 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download Do Analysts' Forecasts Fully Reflect the Information in Accruals? Book in PDF, ePub and Kindle
This study investigates whether financial analysts correctly weight cash flows, accruals and components of accruals in forecasting future earnings. This examination is in the spirit of Sloan (1996) who documents evidence that investors do not correctly distinguish between the cash flow and accrual components of earnings. We find that analysts do distinguish between accruals and cash flows although they generally underweight the information in both accruals and cash flows. More importantly, we find that analysts do not distinguish between discretionary and non-discretionary accruals even though discretionary accruals are less persistent than non-discretionary accruals. Our findings complement and extend the findings in recent studies on analyst forecast inefficiency with respect to the information in accrual and cash flow components of earnings using alternative research designs [Teoh and Wong (1998), Bradshaw, Richardson and Sloan (2000), Barth and Hutton (2000)]. Analysts are considered to play an important role as information intermediaries in educating investors about the future prospects of firms. They are trained in analyzing financial data and have industry expertise as well as detailed firm-specific knowledge through contacts with managers. Thus, one would expect analysts to correctly incorporate the information in earnings components specifically discretionary versus non-discretionary accruals. Our evidence complements evidence in recent studies that raises questions about the ability of analysts, on-average, to correctly incorporate the information in accruals and cash flows in forecasting future earnings. This in turn implies that other outsiders are also likely to find it difficult to undo earnings management via discretionary accruals and therefore provides a rationale for the existence of earnings management.
| 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 | : Sami Keskek |
| Publisher | : |
| Total Pages | : |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
Download Does Market Learning Explain the Disappearance of the Accrual Anomaly? Book in PDF, ePub and Kindle
This study investigates whether market learning explains the absence of the accrual anomaly in recent years by examining three conditions associated with the presence of the anomaly in prior research: (i) a differential relation between future earnings and cash flows versus accruals, (ii) incorrect weighting of cash flows and accruals by investors when predicting earnings, and (iii) association of earnings forecast errors with returns. All of these conditions are widely documented in the anomaly period. In the no-anomaly period, I continue to find a differential relation of cash flows and accruals with future earnings. However, investors appear to correctly weight accruals and cash flows in their earnings predictions implicit in beginning-of-year security prices, consistent with learning. This study also investigates whether improvements in analyst forecasts contribute to investor learning and the absence of the anomaly. The association between analyst optimism and accruals is weaker in the no-anomaly period, but is still statistically significant. Furthermore, the anomaly ended simultaneously for firms followed by analysts and for non-followed firms, suggesting that improvements in analyst forecasts alone cannot account for improved market efficiency with respect to accruals. The results suggest that the anomaly was similar for firms held by institutional investors and for firms with no institutional holdings before the discovery of the anomaly while the anomaly ended sooner for held firms than for non-held firms after the discovery of the anomaly, consistent with the conjecture that arbitrage by institutional investors reduce the anomaly. Overall, the findings are consistent with market learning and suggest that improvement in investors' interpretation of accruals after the discovery of the anomaly explains the end of the anomaly. This improvement in investor learning is not due to changes in analysts' forecasting behavior, however.
| Author | : Leonard Zacks |
| Publisher | : John Wiley & Sons |
| Total Pages | : 352 |
| Release | : 2011-08-24 |
| Genre | : Business & Economics |
| ISBN | : 1118127765 |
Download The Handbook of Equity Market Anomalies Book in PDF, ePub and Kindle
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
