Earnings Forecast Performance and Financial Analyst Turnover During Mergers

This study analyzes the relationship between the future cash flow forecast information provided by financial analysts and accounting information. We examine whether the joint issuance of financial analyst earnings forecasts and cash flow forecasts from 2011 to 2015 contributes to the information usefulness of Korean listed firms. The empirical results of this study are as follows. First, the issuance of analysts’ cash flow forecasts and earnings forecast accuracy were significant positive values. Cash flow forecast accuracy and earnings forecast accuracy were significant positive values. Second, the issuance of analysts’ cash flow forecasts and buy–sell bid spread are significant negative values. These results show that the information asymmetry between the manager and the investor can be reduced based on the rich information environment. This study suggests that cash flow forecasting information of financial analysts provides important evidence for capital market participants because it provides evidence that capital market participants’ information can be used as useful information for economic decision-making. These results show the sustainability of a firm from the viewpoint of a financial analyst who acts as an intermediary and external supervisor in the capital market. In addition, the analysts’ cash flow forecasting information is expected to reduce the information asymmetry between the company and the investor, thereby increasing the transparency and sustainability of the firm.

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Diversified Firms and Analyst Earnings Forecasts: The Role of Management Guidance at the Segment Level

Journal of International Accounting Research ◽

10.2308/jiar-52502 ◽

2019 ◽

Vol 18 (3) ◽

pp. 1-38 ◽

Cited By ~ 1

Author(s):

Paul André ◽

Andrei Filip ◽

Rucsandra Moldovan

Keyword(s):

Earnings Forecasts ◽

Earnings Forecast ◽

Forecast Errors ◽

Group Level ◽

Financial Analyst ◽

Management Guidance ◽

Analyst Earnings ◽

Diversified Firms ◽

Matched Samples

ABSTRACT Using a unique, manually collected dataset, we are the first to analyze the role that management guidance at the segment level plays for the financial analyst earnings forecasts of diversified firms. About half of the diversified European firms in the sample provide segment-level guidance (SLG), with considerable variation in precision and disaggregation. We find that (1) analyst earnings forecast errors are smaller, and (2) the magnitude of disagreement between individual forecasts and the average forecast is lower for firms that provide SLG, beyond the effect of group-level guidance. The results hold in matched samples and within-firm analyses around SLG initiation. We further show that the results are stronger in situations characterized by higher information asymmetry, but not in situations characterized by operational complexity. Overall, the results imply that SLG mitigates, to some extent, the difficult task that financial analysts face when valuing diversified companies.

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