The Quality of Analysts' Cash Flow Forecasts

2009 ◽  
Vol 84 (6) ◽  
pp. 1877-1911 ◽  
Author(s):  
Dan Givoly ◽  
Carla Hayn ◽  
Reuven Lehavy
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Cash Flow ◽  
Earnings Forecasts ◽  
Cash Flows ◽  
Limited Information ◽  
Forecast Period ◽  
The Difference ◽  
Cash Flow Forecasts

ABSTRACT: This study examines properties of analysts' cash flow forecasts and compares them to those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are less accurate than analysts' earnings forecasts and improve at a slower rate during the forecast period. Further, cash flow forecasts appear to be a nai¨ve extension of analysts' earnings forecasts, thus providing limited information on expected changes in working capital. We also find that analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock returns. Finally, estimating expected accruals as the difference between analysts' earnings forecasts and their cash flow forecasts does not result in a better detection of earnings management than achieved by commonly used accrual models.

Properties of analysts’ consensus cash flow forecasts for Australian firms

2020 ◽  
Vol 33 (1) ◽  
pp. 128-147
Author(s):  
Kamran Ahmed ◽  
Muhammad Nurul Houqe ◽  
John Hillier ◽  
Steven Crockett
Keyword(s):  
Cash Flow ◽  
Market Reaction ◽  
Forecast Error ◽  
Earnings Forecasts ◽  
Predictive Performance ◽  
Cash Flows ◽  
Content Type ◽  
Equity Pricing ◽  
Functional Efficiency ◽  
Cash Flow Forecasts

Purpose The purpose of this paper is to determine the properties of analysts’ cash flows from operations (CFO) forecast generated for Australian listed firms as a productive activity, within the wider processes of financial disclosure in Australia. Design/methodology/approach Two categories of criteria are adopted: first, basic predictive statistical performance relative to a benchmark model and earnings forecasts; and second, relevance for equity pricing, as indicated by the market reaction to cash flow or forecast error reactions. The final sample comprised 2,138 observations between 2001 and 2016 and several regression models are estimated to determine the relative performance and market reaction. Findings Analysts’ consensus cash flow forecasts demonstrate poor predictive performance relative to earnings forecasts. Cash flow forecasts are typically naïve extensions of earnings forecasts. Furthermore, cash flow forecasts appear to be of minimal use for equity market participants in complementing earnings forecasts’ role in informing firms’ equity pricing. Practical implications While analysts’ earnings forecasts are useful for making predictions, the role of analysts’ cash flow forecasts in capital market functional efficiency appears quite limited. Originality/value This study is one of few that examines comparative usefulness of analysts’ earnings and cash flow forecasts and their predictive power using the Australian setting. Additionally, it enriches the sparse international literature on such forecasts.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

Dispersion in Analysts' Earnings Forecasts as a Measure of Uncertainty

1998 ◽  
Vol 13 (3) ◽  
pp. 245-270 ◽  
Author(s):  
Orie E. Barron ◽  
Pamela S. Stuerke
Keyword(s):  
Stock Returns ◽  
Earnings Forecasts ◽  
Positive Association ◽  
Cash Flows ◽  
Financial Reports ◽  
Forecast Dispersion ◽  
Additional Information ◽  
Price Reactions ◽  
Daily Stock Returns ◽  
Future Cash Flows

This study examines whether dispersion in analysts' earnings forecasts reflects uncertainty about firms' future economic performance. Prior research examining this issue has been inconclusive. These studies have concluded that forecast dispersion is likely to reflect factors other than uncertainty about future cash flows, such as uncertainty about the price irrelevant component of firms' financial reports (Daley et al. [1988]; Imhoff and Lobo [1992]). Abarbanell et al. (1995) argue that, if forecast dispersion after (i.e., conditional on) an earnings announcement reflects uncertainty about firms' future cash flows and this uncertainty causes investors to desire additional information, then dispersion will be positively associated with both (a) the level of demand for more information and (b) the magnitude of price reactions around the subsequent earnings release. In this study, we construct a measure of informational demand using the incidence of analyst forecast updating after dispersion is measured. We find a positive association between dispersion in earnings forecasts after an earnings release and this measure of informational demand. We also find a positive association between forecast dispersion and the magnitude of price reactions around subsequent earnings releases. These associations are most apparent when potentially stale (or outdated) forecasts are removed from measures of forecast dispersion. These associations also persist after controlling for other measures of uncertainty (e.g., beta and the variance of daily stock returns), consistent with dispersion in analysts' earnings forecasts serving as a useful indicator of uncertainty about the price relevant component of firms' future earnings.

scholarly journals The Association between Various Earnings and Cash Flow Measures of Firm Performance and Stock Returns: some Iranian evidence

2013 ◽  
Vol 3 (1) ◽  
pp. 24 ◽  
Author(s):  
Ali Mazloom ◽  
Alireza Azarberahman ◽  
Jalal Azarberahman
Keyword(s):  
Firm Performance ◽  
Stock Returns ◽  
Cash Flow ◽  
Applied Research ◽  
Stock Exchange ◽  
Cash Flows ◽  
Company Performance ◽  
Statistical Population ◽  
Semi Empirical ◽  
Better Than

The main purpose of this research is the study of association between various measures of firm performance based on earnings and cash flows and stock returns. This research is an applied research, and its design is semi-empirical, which is done by the method of post-event (past information). The statistical population of the research includes all companies listed in Tehran Stock Exchange (TSE), and its period is nine consecutive years, from 2003 to 2011. Simple and multiple regressions are applied in order to test the hypotheses. Results of the research represent that earning based measures are more related to stock returns than cash flow based measures. Furthermore, earning based measures depict the company performance better than cash flow measures in some companies with higher accruals. But in companies with lower accruals, the company performance cannot be depicted properly neither by earning based nor cash flow based measures.

scholarly journals Effect of Operating Cash Flow on Stock Return of Firms Listed In Nairobi Security Exchange

2021 ◽  
Vol 6 (1) ◽  
pp. 26-35
Author(s):  
Samoei Ben Kipngetich ◽  
Joel Tenai ◽  
Andrew Kimwolo
Keyword(s):  
Panel Data ◽  
Stock Returns ◽  
Cash Flow ◽  
Stock Return ◽  
Random Effect ◽  
Random Effect Model ◽  
Secondary Data ◽  
Cash Flows ◽  
Free Cash Flow ◽  
Operating Cash Flow

The main aim of the paper was to establish the effect of operating cash flow on stock return of firms listed in NSE. The study was informed by Free Cash Flow (FCF) theory. Census survey was adapted to review financial statements for 29 listed non-financial firms at NSE that had consistent data for all the study variables. Secondary data was extracted for 12 years from 2007-2019 with the aid of a data collection sheet. Explanatory research design which is panel in nature was followed by this study. Both descriptive and inferential statistics were used in data analysis. Panel data regression was used to make inferences and test research hypothesis. Fixed and Random effects methods were used to analyze the balanced panel data using STATA statistical package and Hausman test established that Random effect model was the most ideal method to analyze data in this study. The findings indicated that operating cash flow positively and significantly influenced the stock returns for firms listed at NSE. The study concludes that operating cash flow information affects stock returns. Therefore, the study advocates for firms to increase their levels of operating cash flows through prudent utilization of cash resources since it enhances the stock returns.

scholarly journals Reaksi Investor Atas Relevansi Informasi Arus Kas Dan Laba Akrual pada Laporan Keuangan Perusahaan

2021 ◽  
Vol 21 (2) ◽  
pp. 575
Author(s):  
Muhammad Imam Sundarta ◽  
Azolla Degita Azis ◽  
Anggita Citra Dewi
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Stock Exchange ◽  
Secondary Data ◽  
Cash Flows ◽  
Financial Reports ◽  
Earnings Information ◽  
Income Statement ◽  
Analysis Technique ◽  
Cash Flow Statement

This study aims to determine whether cash flows and accrual earnings affect on stock returns that contained information about investors reaction in manufacturing industries on the Indonesia Stock Exchange from the 2013-2017 period. This research is a quantitative study using secondary data in the form of financial reports. The data analysis technique used is multiple regression analysis. The results of this study indicate that the cash flow statement has no effect on stock returns, while accrual earnings have a positive effect on stock returns. This finding can be one of the additional literature in the field of financial accounting because investors see the earnings information contained in the income statement compared to the cash flow statement that is reflected in stock returns.

scholarly journals Do Managers Manage Cash Flows in Reaction on Analysts’ Cash Flow Forecasts?

2017 ◽  
Vol null (71) ◽  
pp. 1-32
Author(s):  
심준용 ◽  
윤용석 ◽  
ChoiWooseok
Keyword(s):  
Cash Flow ◽  
Cash Flows ◽  
Cash Flow Forecasts

scholarly journals RESEARCH APPROACHES TO MONETARY FLOW OPTIMIZATION SUBJECT TO SELECTED FACTORS AND CONTROL MEASURES REDUCING THE RISK OF BANKRUPTCY OF THE ORGANIZATION

2017 ◽  
pp. 109-119
Author(s):  
Lyudmila Ivanovna Fedorova ◽  
Svetlana Vyacheslavovna Dzhezheliy
Keyword(s):  
Cash Flow ◽  
Cash Flows ◽  
Control Measures ◽  
Managerial Decision ◽  
Flow Management ◽  
Managerial Decision Making ◽  
Cash Flow Management ◽  
Rational Management ◽  
And Control

In modern conditions the competitiveness of organizations is provided by rational management decisions, which are taken depending on various factors and their impact on the cash flows of the organization. The theme of the study of factors and control measures influencing cash flow management for reducing the risk of bankruptcy is in all respects one of the most controversial and much cited. In the course of study the authors have summarized the approaches of Russian and foreign authors towards the concept "cash flow", revealed certain problems in the quality of decisions, arranged the factors increasing the degree of their effectiveness and directly affecting the financial performance of the organization. Application in the work of the organization of individual elements ("morale") of the group of environmental factors and standards of internal reporting will improve the efficiency of managerial decision-making in part of cash flows from different activities.

scholarly journals PENGARUH GOOD CORPORATE GOVERNANCE TERHADAP EARNINGS MANAGEMENT

2019 ◽  
Vol 8 (1) ◽  
pp. 35
Author(s):  
Hexana Lastanti
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Financial Statements ◽  
Managerial Ownership ◽  
Management Problem ◽  
Good Corporate Governance ◽  
The Difference

<p class="Style2">To be able to achieve good corporate governance, in addition to managerial ownership, institutional ownership and board of directors, the role of the audit committee also needed to further enhance the quality of information contained in the financial statements in accordance with his duties. Good corporate governance is one way to address the practice of earnings management. Study to examine the effect of the mechanisms of good corporate governance on earnings management that uses the data in the Indonesian capital market, still very little is done. Earnings management is a management action in the process of preparing financial statements to influence the level of profit that is displayed. The goal is to improve the welfare of certain parties, which can be identified as an advantage. Earnings management problem is the agency problem that is often triggered by a separation of the role or the difference between the interests of the owners (shareholders) with managing the company's management.</p>

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