Analysts Use Of Accruals And Cash Flows In Forecasting Earnings

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Analysts' Use of Accruals and Cash Flows in Forecasting Earnings

Author : Ramesh Narayana Chari
Publisher :
ISBN 13 :
Total Pages : 140 pages
Book Rating : 4.:/5 (48 download)

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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.

The usefulness of accounting measures in predicting future cash flow

Author : Nikolay Draganov
Publisher : GRIN Verlag
ISBN 13 : 3346463400
Total Pages : 62 pages
Book Rating : 4.3/5 (464 download)

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Book Synopsis The usefulness of accounting measures in predicting future cash flow by : Nikolay Draganov

Download or read book The usefulness of accounting measures in predicting future cash flow written by Nikolay Draganov and published by GRIN Verlag. This book was released on 2021-08-10 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Do Analysts' Forecasts Fully Reflect the Information in Accruals?

Author : Anwer S. Ahmed
Publisher :
ISBN 13 :
Total Pages : 38 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Do Analysts' Forecasts Fully Reflect the Information in Accruals? by : Anwer S. Ahmed

Download or read book Do Analysts' Forecasts Fully Reflect the Information in Accruals? written by Anwer S. Ahmed and published by . This book was released on 2008 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Firms' Propensity to Meet Or Miss Analysts' Forecasts of Cash Flows and Earnings

Author : Lawrence D. Brown
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.:/5 (137 download)

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Book Synopsis Firms' Propensity to Meet Or Miss Analysts' Forecasts of Cash Flows and Earnings by : Lawrence D. Brown

Download or read book Firms' Propensity to Meet Or Miss Analysts' Forecasts of Cash Flows and Earnings written by Lawrence D. Brown and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate firms' propensity to meet analysts' forecasts of cash flows and earnings, and identify factors pertaining to market valuation, financial analysts, and firms' financial condition to explain why firms sometimes meet cash flow forecasts but miss earnings forecasts. Firms meet cash flow forecasts but miss earnings forecasts nearly 75 percent as often as they meet earnings forecasts but miss cash flow forecasts. Firms are more likely to meet cash flow forecasts but miss earnings forecasts when: (1) the adverse valuation consequences of doing so are less severe; (2) analyst following of cash flows vis-a-vis earnings is large; (3) analysts forecast extreme positive accruals; (4) analysts downwardly revise cash flow but not earnings forecasts; (5) firms are in financial distress; (6) firms have inflated balance sheets; and (7) firms report decreases in earnings but not cash flows. We contribute to the literature exploring the importance of analysts' cash flow forecasts.

Accrual and Cash Flow Comparability

Author : Duri Park
Publisher :
ISBN 13 :
Total Pages : 68 pages
Book Rating : 4.:/5 (876 download)

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Book Synopsis Accrual and Cash Flow Comparability by : Duri Park

Download or read book Accrual and Cash Flow Comparability written by Duri Park and published by . This book was released on 2013 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: Prior studies suggest that higher comparability of financial reporting leads to reduced information processing costs for external market participants. However, comparability of firms can arise from two distinct sources: (1) similarities in accounting systems and (2) similarities in the underlying business operations. By decomposing earnings comparability (De Franco, Kothari, and Verdi 2011) into accrual-related and cash flow-related factors, I examine how two different types of comparability affect the information processing costs borne by different information intermediaries in the financial market. I show that the positive relation between earnings comparability and analysts' peer firm coverage documented in De Franco et al. (2011) is mainly driven by comparability in cash flows, consistent with the notion that firms' similarities in underlying operations play an important role in analysts' coverage decisions. Further analysis reveals that both accrual and cash flow comparability significantly affect analysts' forecast accuracy and dispersions. These results extend the work of De Franco et al. (2011) by demonstrating that comparability inherent in firms' operations significantly affects the information processing costs of stock analysts. I also find some evidence that credit rating agencies make more timely downgrades before default for firms with higher cash flow comparability. In contrast to stock analysts, however, accrual comparability seems to play a less influential role for the timeliness of credit rating agencies' downgrade decisions. This is consistent with rating agencies placing more weight on firms' underlying operations (cash flows) relative to accounting numbers (accruals) in assessing default risk. My findings highlight the importance of distinguishing different types of comparability and suggest that comparability may have different implications for financial information users, depending on their roles in the market.

Earnings Management. The Influence of Real and Accrual-Based Earnings Management on Earnings Quality

Author :
Publisher : GRIN Verlag
ISBN 13 : 3964875953
Total Pages : 81 pages
Book Rating : 4.9/5 (648 download)

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Book Synopsis Earnings Management. The Influence of Real and Accrual-Based Earnings Management on Earnings Quality by :

Download or read book Earnings Management. The Influence of Real and Accrual-Based Earnings Management on Earnings Quality written by and published by GRIN Verlag. This book was released on 2024-01-31 with total page 81 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2019 in the subject Business economics - Accounting and Taxes, University of Duisburg-Essen, course: Master Thesis, language: English, abstract: This paper delves into various theories and approaches, aiming to define and differentiate earnings management from related concepts such as fraud, expectation management, and impression management. It explores the goals and incentives driving earnings management, including maximizing or minimizing earnings, beating targets, and smoothing. At the onset of the new millennium, corporate scandals rocked the business world, eroding trust in management, boards of directors, and the accounting profession. In response, regulations and policies aimed at enhancing corporate governance and financial reporting were swiftly implemented. The credibility, clarity, and consistency of financial reporting practices play a pivotal role in enabling investors to make informed decisions. Accurate and fair financial performance representations, as opposed to inflated and misleading figures, are essential for market players, including shareholders and creditors. Investors rely on audited financial reports to guide their investment decisions, underscoring the critical importance of accuracy and reliability in publicly available financial disclosures. Auditors, by reducing the risk of material misstatement, ensure the integrity of the information disclosed in a company's financial statements. Management, with the goal of achieving promised targets and ensuring the company's existence, may engage in earnings management as a strategic contribution to corporate policy. Financial reporting serves as a means to distinguish well-performing companies from their counterparts, facilitating efficient resource allocation and empowering stakeholders to make effective decisions. The disclosed earnings results significantly impact a firm's overall business activities and management decisions, particularly in satisfying analysts' expectations, which can influence equity value. While accounting standards play a role, the quality of financial statements is more influenced by company-specific and institutional factors shaping managers' incentives. These factors lead to financial reporting practices being viewed as the outcome of a cost-benefit assessment.

COMPANY VALUATION UNDER IFRS - 3RD EDITION

Author : Nick Antill
Publisher : Harriman House Limited
ISBN 13 : 0857197770
Total Pages : 286 pages
Book Rating : 4.8/5 (571 download)

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Book Synopsis COMPANY VALUATION UNDER IFRS - 3RD EDITION by : Nick Antill

Download or read book COMPANY VALUATION UNDER IFRS - 3RD EDITION written by Nick Antill and published by Harriman House Limited. This book was released on 2020-02-11 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: Revised and updated. The influence of International Financial Reporting Standards (IFRS) on accounting across the world is stronger than ever. Most importantly, this stems from the mandatory adoption of IFRSs in many parts of the world, including Europe, Canada, Australia, Brazil and, with some relatively small exceptions, China. Additionally, foreign registrants in the US are also permitted to use IFRS by the SEC. The impact of IFRSs also extends to accounting developments as the IASB and the FASB work closely together to formulate new standards such as those recently issued on leasing and revenue recognition. It is clear that investors, analysts and valuers need to understand financial statements produced under IFRS to feed in to their valuations and broader investment decisions. Written by practitioners for practitioners, the book addresses valuation from the viewpoint of the analyst, the investor and the corporate acquirer. It starts with valuation theory: what is to be discounted and at what discount rate? It explains the connection between standard methodologies based on free cash flow and on return on capital. And it emphasizes that, whichever method is used, accurate interpretation of accounting information is critical to the production of sensible valuations. The authors argue that forecasts of cash flows imply views on profits and balance sheets, and that non-cash items contain useful information about future cash flows - so profits matter. The book addresses the implications for analysis, modelling and valuation of key aspects of IFRS, all updated for recent developments, including: - Pensions - Stock options - Derivatives - Provisions - Leases - Revenue recognition - Foreign currency The text also sets out the key differences between IFRS and US GAAP treatments of these issues, in addition to their implications for analysis. A detailed case study is used to provide a step-by-step valuation of an industrial company using both free cash flow and economic profit methodologies. The authors then address a range of common valuation problems, including cyclical or immature companies, as well as the specialist accounting and modelling knowledge required for regulated utilities, resource extraction companies, banks, insurance companies, real estate companies and technology companies. Accounting for mergers and disposals is first explained and then illustrated with a detailed potential acquisition.

An Empirical Analysis of Analysts' Cash Flow Forecasts

Author : Mark L. DeFond
Publisher :
ISBN 13 :
Total Pages : 38 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis An Empirical Analysis of Analysts' Cash Flow Forecasts by : Mark L. DeFond

Download or read book An Empirical Analysis of Analysts' Cash Flow Forecasts written by Mark L. DeFond and published by . This book was released on 2003 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the relatively recent and growing trend in analysts making operating cash flow forecasts. We find that cash flow forecasts are made for companies with accounting, operating and financing characteristics that are likely to make cash flows more helpful in interpreting earnings and assessing firm viability. Specifically, consistent with our expectations, we find that cash flow forecasts are more likely to be made for firms: (1) in industries with greater accounting choice heterogeneity; (2) with forecasted earnings losses;(3) with shorter operating cycles; (4) with greater capital intensity; and (5) with higher leverage. These findings suggest that market participants demand cash flow forecasts when cash flows are relatively more useful in assessing firm value. Supporting this explanation, we also find that analysts make cash flow forecasts when current cash flows have greater ability, and earnings have less ability, to predict future cash flows; when annual earnings have a lower association with stock returns; and when cash flow forecast errors are associated with stock returns around the earnings announcement date, but earnings forecast errors are not.

Introduction to Earnings Management

Author : Malek El Diri
Publisher : Springer
ISBN 13 : 3319626868
Total Pages : 120 pages
Book Rating : 4.3/5 (196 download)

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Book Synopsis Introduction to Earnings Management by : Malek El Diri

Download or read book Introduction to Earnings Management written by Malek El Diri and published by Springer. This book was released on 2017-08-20 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.

Financial Analysts and the Pricing of Accruals

Author : Mary E. Barth
Publisher :
ISBN 13 :
Total Pages : 66 pages
Book Rating : 4.:/5 (129 download)

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Book Synopsis Financial Analysts and the Pricing of Accruals by : Mary E. Barth

Download or read book Financial Analysts and the Pricing of Accruals written by Mary E. Barth and published by . This book was released on 2003 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: We test predictions relating to the role of financial analysts in aiding investors' assessment of the different valuation implications of the cash flow and accrual components of earnings. First, we examine whether analysts revise their forecasts of future earnings in anticipation of predictable accrual reversals. Then, we examine whether share prices reflect predictable accrual reversals differently depending on analyst activity. Our findings suggest that analysts act as sophisticated information intermediaries in that some analysts are able to identify firms with less persistent accruals. However, share prices do not reflect the information conveyed by analyst forecast revisions. Rather, investors appear to expect the same persistence in earnings, regardless of its cash flow and accrual components and regardless of analyst activity, until the accruals reverse. Thus, incorporating information from analyst activity substantially improves short-term returns to an accrual-based trading strategy.

Advances in Quantitative Analysis of Finance and Accounting (New Series) Vol. 17

Author : Cheng F.Lee
Publisher : Center for PBBEFR & Ainosco Press
ISBN 13 : 9866286754
Total Pages : pages
Book Rating : 4.8/5 (662 download)

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Book Synopsis Advances in Quantitative Analysis of Finance and Accounting (New Series) Vol. 17 by : Cheng F.Lee

Download or read book Advances in Quantitative Analysis of Finance and Accounting (New Series) Vol. 17 written by Cheng F.Lee and published by Center for PBBEFR & Ainosco Press. This book was released on 2020-01-01 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Advances in Quantitative Analysis of Finance and Accounting (New Series) is an annual publication designed to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and the accounting profession.

The Quality of Analysts' Cash Flow Forecasts

Author : Dan Givoly
Publisher :
ISBN 13 :
Total Pages : 49 pages
Book Rating : 4.:/5 (129 download)

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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.

The Persistence and Pricing of Earnings, Accruals and Cash Flows when Firms Have Large Book-tax Differences

Author : Michelle Lee Hanlon
Publisher :
ISBN 13 :
Total Pages : 130 pages
Book Rating : 4.:/5 (524 download)

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Book Synopsis The Persistence and Pricing of Earnings, Accruals and Cash Flows when Firms Have Large Book-tax Differences by : Michelle Lee Hanlon

Download or read book The Persistence and Pricing of Earnings, Accruals and Cash Flows when Firms Have Large Book-tax Differences written by Michelle Lee Hanlon and published by . This book was released on 2003 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt:

To Beat Or Not to Beat? The Importance of Analysts' Cash Flow Forecasts

Author : Lawrence D. Brown
Publisher :
ISBN 13 :
Total Pages : 47 pages
Book Rating : 4.:/5 (13 download)

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Book Synopsis To Beat Or Not to Beat? The Importance of Analysts' Cash Flow Forecasts by : Lawrence D. Brown

Download or read book To Beat Or Not to Beat? The Importance of Analysts' Cash Flow Forecasts written by Lawrence D. Brown and published by . This book was released on 2014 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the implications of firms' benchmark-beating pattern with respect to analysts' quarterly cash flow forecasts for current capital market valuation and future firm performance. We contend that nonnegative earnings surprises are more likely to be supported by real operating performance and signal higher earnings quality if they are achieved via higher than expected cash flows or lower than expected accruals. We show that firms beating analyst earnings forecasts experience larger positive capital market reactions and larger earnings response coefficients if they beat analyst cash flow forecasts or report lower than expected accruals. We show that superior future firm performance provides an economic justification for the more favorable capital market response obtained by these firms. Our findings suggest that firms' ability to beat analyst cash flow forecasts is informative regarding the quality of earnings surprises.

Two Essays in Financial Accounting

Author : Dorothy Alexander-Smith
Publisher :
ISBN 13 :
Total Pages : 143 pages
Book Rating : 4.:/5 (773 download)

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Book Synopsis Two Essays in Financial Accounting by : Dorothy Alexander-Smith

Download or read book Two Essays in Financial Accounting written by Dorothy Alexander-Smith and published by . This book was released on 2011 with total page 143 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay 1: The Association of Earnings Quality with Financial Analysts' Earnings Forecast Attributes. This study investigates the association between firms' earnings quality and analysts' forecast errors and dispersion. The findings suggest that the quality of earnings is inversely related to analysts' forecast errors but is not associated with forecast dispersion. These results are better understood by an examination of the relationship of forecast error and dispersion with the major sub-components of earnings quality- the quality of the innate accrual component (quality of accruals related to the complexity of the firm's operations) and the quality of the discretionary accrual component (quality of managements' judgment as reflected in accruals used to project future performance). The inverse association between earnings quality and forecast error is driven primarily by the quality of the firm's innate accrual component (InnAQ). As firm complexity and variability increase, earnings contain larger amounts of management judgment and estimation. The larger amount of management estimation included in earnings renders it relatively less reliable and thus forecasting difficulty (reflected in greater forecast errors and dispersion) is amplified for poorer InnAQ. This inverse association is the dominant effect in earnings quality's association with analysts' forecast errors. The quality of firms' discretionary accrual components depends upon whether managers use of their discretion to provide value relevant information, or whether they use the discretionary component to incorporate manipulative and noisy discretionary accruals. In a regression of the of firms' discretionary earnings components on forecast dispersion I find an inverse relationship between the magnitude of the firm's discretionary earnings component and analysts' forecast dispersion. This is consistent with managers using the discretionary component to provide information on firm performance, thus facilitating more precision in analysts' forecasts. This essay contributes to two controversial areas of accounting research. The study indirectly provides evidence supporting managers' (on average) use of their discretion to provide value relevant information in earnings; and it simultaneously demonstrates analysts' expertise in incorporating information related to EQ and its sub components into their forecasts. Essay 2: The Influence of Earnings Quality on Financial Analysts' Herding Behavior. Essay 2 investigates how firms' EQ and its innate (the quality of accruals related to the complexity of the firm's operations) and discretionary (the quality of accruals based on managements' discretion) sub-components affect analysts' motivation to issue herding forecasts. Herding forecasts are forecasts which mimic those issued by other analysts and ignore the analyst's own private information. Although theoretical studies have linked herding behavior to analysts' rational reputational concerns, herding reduces the information available to investors in the market and hence negatively impacts market efficiency. Conversely, bold forecasts, forecasts issued which move away from the consensus (linked in prior studies to greater private information release and higher accuracy) are likely to contribute to improved market efficiency. As capital market intermediaries, financial analysts are charged with facilitating investors' investment decisions. The literature documents that poor earnings quality reduces investors' ability to evaluate firm performance. This essay contributes to the literature by providing evidence on how financial analysts' herding behavior is influenced by EQ and its sub components. Results show that the quality of the firm's innate accrual component is the major driver of analysts' bold forecasting. The negative association between forecast boldness and firms' innate accrual quality indicates that analysts issue bolder forecasts when investors have more difficulty determining firm value (noisier signal from innate accrual component). Given the prior literature finds that bolder forecasts contain more private information and are more accurate, the results suggests that analysts are effectively performing their market intermediary function. The lack of a significant association between bold forecasting and the discretionary earnings component is in line with prior literature's documentation of analysts' poor utilization of the discretionary information in their forecasts. However, this study's evidence of a positive association between bold forecasts and analysts' firm specific experience implies that analysts with more firm specific experience have a greater understanding of managers' discretionary signals and exploit their advantage by issuing bolder forecasts. Results show a negative association between firms' overall EQ and analysts' forecast boldness implying that analysts herd more the higher the firm's EQ. This finding underscores the importance of reputational concerns and the demand for analysts' investment advice for analysts' herding behavior.

Do Analysts' Cash Flow Forecasts Mitigate the Accrual Anomaly? International Evidence

Author : Elizabeth A. Gordon
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.:/5 (13 download)

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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.

Advances in Quantitative Analysis of Finance and Accounting

Author : Cheng F. Lee
Publisher : World Scientific
ISBN 13 : 9812772820
Total Pages : 376 pages
Book Rating : 4.8/5 (127 download)

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Book Synopsis Advances in Quantitative Analysis of Finance and Accounting by : Cheng F. Lee

Download or read book Advances in Quantitative Analysis of Finance and Accounting written by Cheng F. Lee and published by World Scientific. This book was released on 2006 with total page 376 pages. Available in PDF, EPUB and Kindle. Book excerpt: Annotation. Advances in Quantitative Analysis of Finance and Accounting is an annual publication to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and the accounting profession. The papers in this volume cover a wide range of topics including earnings management, management compensation, option theory and application, debt management and interest rate theory, and portfolio diversification.