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Are Analysts Cash Flow Forecasts Associated With Improved Earnings Quality Australian Evidence
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Book Synopsis Are Analysts' Cash Flow Forecasts Associated with Improved Earnings Quality? Australian Evidence by : Jeffrey Coulton
Download or read book Are Analysts' Cash Flow Forecasts Associated with Improved Earnings Quality? Australian Evidence written by Jeffrey Coulton and published by . This book was released on 2019 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).
Book Synopsis Audit Firm Industry Specialisation and Analyst Forecast Accuracy by : Yi Wu
Download or read book Audit Firm Industry Specialisation and Analyst Forecast Accuracy written by Yi Wu and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis The Quality of Analysts' Cash Flow Forecasts by : Dan Givoly
Download or read book The Quality of Analysts' Cash Flow Forecasts written by Dan Givoly and published by . This book was released on 2008 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Analysts' Use of Accruals and Cash Flows in Forecasting Earnings by : Ramesh Narayana Chari
Download or read book Analysts' Use of Accruals and Cash Flows in Forecasting Earnings written by Ramesh Narayana Chari and published by . This book was released on 1998 with total page 140 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Do Analysts' Cash Flow Forecasts Improve the Accuracy of Their Target Prices? by : Noor Hashim
Download or read book Do Analysts' Cash Flow Forecasts Improve the Accuracy of Their Target Prices? written by Noor Hashim and published by . This book was released on 2016 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Analysts' Selective Provisions of Cash Flow Forecasts Between Good and Bad News Earnings Forecasts by : Choong-Yuel Yoo
Download or read book Analysts' Selective Provisions of Cash Flow Forecasts Between Good and Bad News Earnings Forecasts written by Choong-Yuel Yoo and published by . This book was released on 2009 with total page 204 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).
Book Synopsis Discussion of Investor Protection and Analysts' Cash Flow Forecasts Around the World by : Luzi Hail
Download or read book Discussion of Investor Protection and Analysts' Cash Flow Forecasts Around the World written by Luzi Hail and published by . This book was released on 2011 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Do Analysts' Cash Flow Forecasts Mitigate the Accrual Anomaly? International Evidence by : Elizabeth A. Gordon
Download or read book Do Analysts' Cash Flow Forecasts Mitigate the Accrual Anomaly? International Evidence written by Elizabeth A. Gordon and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis The RISE and RISE of NON-GAAP DISCLOSURE by : Jeff Coulton
Download or read book The RISE and RISE of NON-GAAP DISCLOSURE written by Jeff Coulton and published by . This book was released on 2016-11-24 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Author :Patricia M. Dechow Publisher :Research Foundation of the Institute of Chartered Financial Analysts ISBN 13 :9780943205687 Total Pages :152 pages Book Rating :4.2/5 (56 download)
Book Synopsis Earnings Quality by : Patricia M. Dechow
Download or read book Earnings Quality written by Patricia M. Dechow and published by Research Foundation of the Institute of Chartered Financial Analysts. This book was released on 2004-01-01 with total page 152 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Earnings Quality by : Jennifer Francis
Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Book Synopsis Research Methods and Statistics in Psychology by : Hugh Coolican
Download or read book Research Methods and Statistics in Psychology written by Hugh Coolican and published by Psychology Press. This book was released on 2017-08-16 with total page 788 pages. Available in PDF, EPUB and Kindle. Book excerpt: This sixth edition of Research Methods and Statistics in Psychology has been fully revised and updated, providing students with the most readable and comprehensive survey of research methods, statistical concepts and procedures in psychology today. Assuming no prior knowledge, this bestselling text takes you through every stage of your research project giving advice on planning and conducting studies, analysing data and writing up reports. The book provides clear coverage of statistical procedures, and includes everything needed from nominal level tests to multi-factorial ANOVA designs, multiple regression and log linear analysis. It features detailed and illustrated SPSS instructions for all these procedures eliminating the need for an extra SPSS textbook. New features in the sixth edition include: "Tricky bits" - in-depth notes on the things that students typically have problems with, including common misunderstandings and likely mistakes. Improved coverage of qualitative methods and analysis, plus updates to Grounded Theory, Interpretive Phenomenological Analysis and Discourse Analysis. A full and recently published journal article using Thematic Analysis, illustrating how articles appear in print. Discussion of contemporary issues and debates, including recent coverage of journals’ reluctance to publish replication of studies. Fully updated online links, offering even more information and useful resources, especially for statistics. Each chapter contains a glossary, key terms and newly integrated exercises, ensuring that key concepts are understood. A companion website (www.routledge.com/cw/coolican) provides additional exercises, revision flash cards, links to further reading and data for use with SPSS.
Book Synopsis Earnings Management by : Joshua Ronen
Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
Book Synopsis Estimating the Cost of Capital Implied by Market Prices and Accounting Data by : Peter Easton
Download or read book Estimating the Cost of Capital Implied by Market Prices and Accounting Data written by Peter Easton and published by Now Publishers Inc. This book was released on 2009 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Financial Reporting and Analysis by : Lawrence Revsine
Download or read book Financial Reporting and Analysis written by Lawrence Revsine and published by McGraw-Hill/Irwin. This book was released on 2008-06-30 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial Reporting & Analysis (FR&A) by Revsine/Collins/Johnson/Mittelstaedt emphasizes both the process of financial reporting and the analysis of financial statements. This book employs a true "user" perspective by discussing the contracting and decision implications of accounting and this helps readers understand why accounting choices matter and to whom. Revsine, Collins, Johnson, and Mittelstaedt train their readers to be good financial detectives, able to read, use, and interpret the statements and-most importantly understand how and why managers can utilize the flexibility in GAAP to manipulate the numbers for their own purposes.
Book Synopsis The End of Accounting and the Path Forward for Investors and Managers by : Baruch Lev
Download or read book The End of Accounting and the Path Forward for Investors and Managers written by Baruch Lev and published by John Wiley & Sons. This book was released on 2016-06-14 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: An innovative new valuation framework with truly useful economic indicators The End of Accounting and the Path Forward for Investors and Managers shows how the ubiquitous financial reports have become useless in capital market decisions and lays out an actionable alternative. Based on a comprehensive, large-sample empirical analysis, this book reports financial documents' continuous deterioration in relevance to investors' decisions. An enlightening discussion details the reasons why accounting is losing relevance in today's market, backed by numerous examples with real-world impact. Beyond simply identifying the problem, this report offers a solution—the Value Creation Report—and demonstrates its utility in key industries. New indicators focus on strategy and execution to identify and evaluate a company's true value-creating resources for a more up-to-date approach to critical investment decision-making. While entire industries have come to rely on financial reports for vital information, these documents are flawed and insufficient when it comes to the way investors and lenders work in the current economic climate. This book demonstrates an alternative, giving you a new framework for more informed decision making. Discover a new, comprehensive system of economic indicators Focus on strategic, value-creating resources in company valuation Learn how traditional financial documents are quickly losing their utility Find a path forward with actionable, up-to-date information Major corporate decisions, such as restructuring and M&A, are predicated on financial indicators of profitability and asset/liabilities values. These documents move mountains, so what happens if they're based on faulty indicators that fail to show the true value of the company? The End of Accounting and the Path Forward for Investors and Managers shows you the reality and offers a new blueprint for more accurate valuation.
Book Synopsis Valuation Techniques by : David T. Larrabee
Download or read book Valuation Techniques written by David T. Larrabee and published by John Wiley & Sons. This book was released on 2012-11-06 with total page 628 pages. Available in PDF, EPUB and Kindle. Book excerpt: Analysis and insights from top thought leaders on a pivotal topic in investing and asset management Valuation is the cornerstone for investment analysis, and a thorough understanding and correct application of valuation methodologies are critical for long-term investing success. Edited by two leading valuation experts from CFA Institute, this book brings together the insights and expertise of some of the most astute and successful investment minds of the past 50 years. From Benjamin Graham, the “father of value investing,” to Aswath Damodaran, you’ll learn what these investment luminaries have to say about investment valuation techniques, including earnings and cash flow analysis. Features the best thinking on valuation from the industry’s masters on the topic, supplemented with dozens of fascinating and instructive real-world examples Comprehensively discusses special valuation situations, such as real options, employee stock options, highly leveraged firms, corporate takeovers, and more Supplies you with the tools you need to successfully navigate and thrive in the ever-changing financial markets Is being produced with the full support and input of CFA Institute, the world’s leading association of investment professionals
