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Earnings Forecasts (earning + forecast)
Kinds of Earnings Forecasts Selected AbstractsAuditor Quality and the Accuracy of Management Earnings Forecasts,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2000PETER M. CLARKSON Abstract In this study, we appeal to insights and results from Davidson and Neu 1993 and McConomy 1998 to motivate empirical analyses designed to gain a better understanding of the relationship between auditor quality and forecast accuracy. We extend and refine Davidson and Neu's analysis of this relationship by introducing additional controls for business risk and by considering data from two distinct time periods: one in which the audit firm's responsibility respecting the earnings forecast was to provide review-level assurance, and one in which its responsibility was to provide audit-level assurance. Our sample data consist of Toronto Stock Exchange (TSE) initial public offerings (IPOs). The earnings forecast we consider is the one-year-ahead management earnings forecast included in the IPO offering prospectus. The results suggest that after the additional controls for business risk are introduced, the relationship between forecast accuracy and auditor quality for the review-level assurance period is no longer significant. The results also indicate that the shift in regimes alters the fundamental nature of the relationship. Using data from the audit-level assurance regime, we find a negative and significant relationship between forecast accuracy and auditor quality (i.e., we find Big 6 auditors to be associated with smaller absolute forecast errors than non-Big 6 auditors), and further, that the difference in the relationship between the two regimes is statistically significant. [source] The Effect of National Governance Codes on Firm Disclosure Practices: Evidence from Analyst Earnings ForecastsCORPORATE GOVERNANCE, Issue 6 2008John Nowland ABSTRACT Manuscript Type: Empirical Research Question: This study examines whether voluntary national governance codes have a significant effect on company disclosure practices. Two direct effects of the codes are expected: 1) an overall improvement in company disclosure practices, which is greater when the codes have a greater emphasis on disclosure; and 2) a leveling out of disclosure practices across companies (i.e., larger improvements in companies that were previously poorer disclosers) due to the codes new comply-or-explain requirements. The codes are also expected to have an indirect effect on disclosure practices through their effect on company governance practices. Research Findings/Results: The results show that the introduction of the codes in eight East Asian countries has been associated with lower analyst forecast error and a leveling out of disclosure practices across companies. The codes are also found to have an indirect effect on company disclosure practices through their effect on board independence. Practical Implications: This study shows that a regulatory approach to improving disclosure practices is not always necessary. Voluntary national governance codes are found to have both a significant direct effect and a significant indirect effect on company disclosure practices. In addition, the results indicate that analysts in Asia do react to changes in disclosure practices, so there is an incentive for small companies and family-owned companies to further improve their disclosure practices. [source] Common Risk Factors Versus a Mispricing Factor of Tokyo Stock Exchange Firms: Inquiries into the Fundamental Value Derived from Analyst Earnings Forecasts,INTERNATIONAL REVIEW OF FINANCE, Issue 3 2009KEIICHI KUBOTA ABSTRACT We search for common factors and/or a mispricing factor for Tokyo Stock Exchange firms. We utilize the Edwards,Bell,Ohlson model to compute the firms' fundamental value and divide this value by the firms' market price to construct a new variable called a ,value-to-price ratio' (VPR). We find that this VPR variable can generate abnormal returns even after adjusting for the risk factors related to portfolio style differences. To find out whether it is indeed a risk factor or simply a characteristic, we construct return difference portfolios of the high VPR stocks minus the low value-to-price stocks and call this portfolio the upward-forecast minus downward-forecast (UMD) factor. Fama and MacBeth test indicate that the risk premium for this UMD factor is positive. The best model in terms of the adjusted R2 value is the four-factor model in which the UMD factor is added to the Fama and French three factors. GMM Euler condition tests reveal that the UMD factor helps to price assets and that the four-factor model is not rejected. We conclude the VPR variable contains new information content that is not contained in the conventional Fama and French's three factors. [source] Effect of Analysts' Optimism on Estimates of the Expected Rate of Return Implied by Earnings ForecastsJOURNAL OF ACCOUNTING RESEARCH, Issue 5 2007PETER D. EASTON ABSTRACT Recent literature has used analysts' earnings forecasts, which are known to be optimistic, to estimate implied expected rates of return, yielding upwardly biased estimates. We estimate that the bias, computed as the difference between the estimates of the implied expected rate of return based on analysts' earnings forecasts and estimates based on current earnings realizations, is 2.84%. The importance of this bias is illustrated by the fact that several extant studies estimate an equity premium in the vicinity of 3%, which would be eliminated by the removal of the bias. We illustrate the point that cross-sample differences in the bias may lead to the erroneous conclusion that cost of capital differs across these samples by showing that analysts' optimism, and hence, bias in the implied estimates of the expected rate of return, differs with firm size and with analysts' recommendation. As an important aside, we show that the bias in a value-weighted estimate of the implied equity premium is 1.60% and that the unbiased value-weighted estimate of this premium is 4.43%. [source] The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical AnalysisJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2005IRENE KARAMANOU ABSTRACT We study how corporate boards and audit committees are associated with voluntary financial disclosure practices, proxied here by management earnings forecasts. We find that in firms with more effective board and audit committee structures, managers are more likely to make or update an earnings forecast, and their forecast is less likely to be precise, it is more accurate, and it elicits a more favorable market response. Together, our empirical evidence is broadly consistent with the notion that effective corporate governance is associated with higher financial disclosure quality. [source] Confirming Management Earnings Forecasts, Earnings Uncertainty, and Stock ReturnsJOURNAL OF ACCOUNTING RESEARCH, Issue 4 2003Michael Clement In this study we examine the association among confirming management forecasts, stock prices, and analyst expectations. Confirming management forecasts are voluntary disclosures by management that corroborate existing market expectations about future earnings. This study provides evidence that these voluntary disclosures affect stock prices and the dispersion of analyst expectations. Specifically, we find that the market's reaction to confirming forecasts is significantly positive, indicating that benefits accrue to firms that disclose such forecasts. In addition, although we find no significant change in the mean consensus forecasts (a proxy for earnings expectations) around the confirming forecast date, evidence indicates a significant reduction in the mean and median consensus analyst dispersion (a proxy for earnings uncertainty). Finally, we document a positive association between the reduction of dispersion of analysts' forecasts and the magnitude of the stock market response. Overall, the evidence suggests that confirming forecasts reduce uncertainty about future earnings and that investors price this reduction of uncertainty. [source] The Effect of Earnings Forecasts on Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002Sunil Dutta We develop a theory of the association between earnings management and voluntary management forecasts in an agency setting. Earnings management is modeled as a "window dressing" action that can increase the firm's reported accounting earnings but has no impact on the firm's real cash flows. Earnings forecasts are modeled as the manager's communication of the firm's future cash flows. We show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings. We also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts. Finally, our analysis shows that shareholders may not find it optimal to prohibit earnings management. Earlier results rationalize earnings management by violating some assumption underlying the Revelation Principle. By contrast, in our model the principal can make full commitments and communication is unrestricted. Nonetheless, earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts. [source] The Implications of Dispersion in Analysts' Earnings Forecasts for Future ROE and Future ReturnsJOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 1-2 2000Bong H. Han Dispersion in analysts' forecasts is empirically evaluated by associating dispersion with a firm's future accounting rate of return-on-equity (ROE) and future returns. Forecast dispersion is significantly and negatively associated with future ROE, consistent with the notion that firm disclosures and analysts' information acquisition efforts increase as firm prospects improve. Forecast dispersion is negatively associated with future returns. This appears due to the implications of dispersion for future ROE, and suggests that the market does not immediately assimilate the information contained in forecast dispersion. Dispersion also conveys information about firm-specific risk not captured by beta and firm size. [source] Dissemination of Accruals Information, Role of Semi-Annual Reporting, and Analysts' Earnings Forecasts: Evidence from JapanJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2010Keiichi Kubota Our study investigates the effects of dissemination of accounting accruals information on stock prices using Japanese annual reports as our sample. We conduct month-by-month detailed analyses of price adjustment behavior with a particular focus on revisions of analysts' earnings forecasts and changes in trading volume around the period of upcoming semi-annual reports. We find that analysts' forecasts are often revised around this time, and analysts use this as auxiliary information. In addition, an accompanying re-adjustment of abnormal returns and an increase in trading volume are observed. Our findings demonstrate that informational uncertainty initially triggered by the announcement of annual reports decreases as semi-annual reports are disclosed and analysts change their earnings forecasts, and confirms the importance of semi-annual reporting. [source] On the Performance of Naïve, Analyst and Composite Earnings Forecasts: Evidence from Hong KongJOURNAL OF INTERNATIONAL FINANCIAL MANAGEMENT & ACCOUNTING, Issue 2 2003Joseph W. Cheng In this paper, we compare the information content and performance of naïve, analyst and composite forecasts in Hong Kong. Empirical evidence shows that superior performance can be obtained by a composite measure combining both analyst and naïve forecasts. In addition, analyst forecasts become more conditionally efficient over the naïve model as the actual announcement approaches. The superiority and timing advantage of analyst forecasts suggest that more emphasis should be placed on the services of analysts for predicting future earnings figures, particularly when the announcement is approaching. [source] The Effect of Earnings Forecasts on Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002Sunil Dutta We develop a theory of the association between earnings management and voluntary management forecasts in an agency setting. Earnings management is modeled as a "window dressing" action that can increase the firm's reported accounting earnings but has no impact on the firm's real cash flows. Earnings forecasts are modeled as the manager's communication of the firm's future cash flows. We show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings. We also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts. Finally, our analysis shows that shareholders may not find it optimal to prohibit earnings management. Earlier results rationalize earnings management by violating some assumption underlying the Revelation Principle. By contrast, in our model the principal can make full commitments and communication is unrestricted. Nonetheless, earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts. [source] Auditor Quality and the Accuracy of Management Earnings Forecasts,CONTEMPORARY ACCOUNTING RESEARCH, Issue 4 2000PETER M. CLARKSON Abstract In this study, we appeal to insights and results from Davidson and Neu 1993 and McConomy 1998 to motivate empirical analyses designed to gain a better understanding of the relationship between auditor quality and forecast accuracy. We extend and refine Davidson and Neu's analysis of this relationship by introducing additional controls for business risk and by considering data from two distinct time periods: one in which the audit firm's responsibility respecting the earnings forecast was to provide review-level assurance, and one in which its responsibility was to provide audit-level assurance. Our sample data consist of Toronto Stock Exchange (TSE) initial public offerings (IPOs). The earnings forecast we consider is the one-year-ahead management earnings forecast included in the IPO offering prospectus. The results suggest that after the additional controls for business risk are introduced, the relationship between forecast accuracy and auditor quality for the review-level assurance period is no longer significant. The results also indicate that the shift in regimes alters the fundamental nature of the relationship. Using data from the audit-level assurance regime, we find a negative and significant relationship between forecast accuracy and auditor quality (i.e., we find Big 6 auditors to be associated with smaller absolute forecast errors than non-Big 6 auditors), and further, that the difference in the relationship between the two regimes is statistically significant. [source] Initiating coverage, broker reputation and management earnings forecasts in AustraliaACCOUNTING & FINANCE, Issue 3 2007Rob Brown G14 Abstract We examine more than 5000 recommendations made by Australian brokers in the period 1996,2001. We find evidence that initiating recommendations produce greater share price responses than continuing recommendations, particularly for hold, underperform and sell recommendations. We also find evidence that initiating recommendations made by higher-reputation brokers and those made in the absence of a management earnings forecast attract different share price responses. Finally, we find that share price responses to initiating recommendations, conditional on the market consensus recommendation, are significantly different to continuing recommendations. [source] Earnings Management to Avoid Losses and Earnings Decreases: Are Analysts Fooled?,CONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2003David C. Burgstahler Abstract This paper explores whether analyst forecasts impound the earnings management to avoid losses and small earnings decreases documented in Burgstahler and Dichev 1997, whether analysts are able to identify which specific firms engage in such earnings management, and the implications for significant forecast error anomalies at zero earnings and zero forecast earnings. We use data from Zacks Investment Research 1999 and find that analysts anticipate earnings management to avoid small losses and small earnings decreases. Further, analysts are much more likely to forecast zero earnings than firms are to realize zero earnings, and analysts are unable to consistently identify the specific firms that engage in earnings management to avoid small losses. This latter inability contributes to significant forecast pessimism associated with zero reported earnings and significant forecast optimism associated with zero earnings forecasts. [source] Accounting Policy Disclosures and Analysts' ForecastsCONTEMPORARY ACCOUNTING RESEARCH, Issue 2 2003Ole-Kristian Hope Abstract Using an international sample, I investigate whether the extent of firms' disclosure of their accounting policies in the annual report is associated with properties of analysts' earnings forecasts. Controlling for firm- and country-level variables, I find that the level of accounting policy disclosure is significantly negatively related to forecast dispersion and forecast error. In particular, I find that accounting policy disclosures are incrementally useful to analysts over and above all other annual report disclosures. These findings suggest that accounting policy disclosures reduce uncertainty about forecasted earnings. I find univariate but not multivariate support for the hypothesis that accounting policy disclosures are especially helpful to analysts in environments where firms can choose among a larger set of accounting methods. [source] The Association Between Web-Based Corporate Performance Disclosure and Financial Analyst Behaviour Under Different Governance RegimesCORPORATE GOVERNANCE, Issue 6 2007Walter Aerts In this study, we assert and test that the determination of corporate performance communication and financial analysts' earnings forecasting work are closely intertwined processes. The resulting endogeneity in capital markets' information dissemination and use is strongly influenced by a country's governance regime. Results from simultaneous equation regressions show significant interrelationships between financial analysts' activities and corporate disclosure transparency for North American firms. Moreover, analyst following underlies corporate disclosure, which ultimately leads to a reduction in the dispersion of analysts' earnings forecasts. In contrast, capital markets' information dynamics for continental European firms are much weaker. [source] Lockup and Voluntary Earnings Forecast Disclosure in IPOsFINANCIAL MANAGEMENT, Issue 3 2007Beng Soon Chong Associate Professors We examine the relation between lockup length and voluntary earnings forecast disclosures for IPOs in Singapore. Unlike firms in the United States, companies in Singapore are allowed to provide earnings forecasts in their IPO prospectuses. We find that forecasters are more likely to accept longer lockup periods, so that the lockup expires after the first post-IPO earnings announcement. Our study also shows that because the lockup agreement removes personal incentives to issue aggressive forecasts, IPO firms tend to issue conservative forecasts. Overall, our results suggest that the lockup mechanism adds credibility to the earnings forecast given in the IPO prospectus. [source] IPO Underpricing, Firm Quality, and Analyst ForecastsFINANCIAL MANAGEMENT, Issue 2 2007Steven X. Zheng We find that IPO underpricing is positively related to post-IPO growth in sales and EBITDA, but is not significantly related to growth in earnings. Our evidence suggests that accrual reversals or earnings management may cause this inconsistency. We interpret the growth rates of sales and EBITDA as measures of firm quality, and conclude that our evidence supports the notion that IPO firms with greater underpricing are of better quality. Our tests on analysts' earnings forecast errors show that analysts are less positively biased in their earnings forecasts for IPO firms that have greater underpricing. [source] Cash flow disaggregation and the prediction of future earningsACCOUNTING & FINANCE, Issue 1 2010Neal Arthur G11; G23 Abstract We examine the incremental information content of the components of cash flows from operations (CFO). Specifically the research question examined in this paper is whether models incorporating components of CFO to predict future earnings provide lower prediction errors than models incorporating simply net CFO. We use Australian data in this setting as all companies were required to provide information using the direct method during the sample period. We find that the cash flow components model is superior to an aggregate cash flow model in terms of explanatory power and predictive ability for future earnings; and that disclosure of non-core (core) cash flows components is (not) useful in both respects. Our results are of relevance to investors and analysts in estimating earnings forecasts, managers of firms in regulators' domains where choice is provided with respect to the disclosure of CFO and also to regulators' deliberations on disclosure requirements and recommendations. [source] Initiating coverage, broker reputation and management earnings forecasts in AustraliaACCOUNTING & FINANCE, Issue 3 2007Rob Brown G14 Abstract We examine more than 5000 recommendations made by Australian brokers in the period 1996,2001. We find evidence that initiating recommendations produce greater share price responses than continuing recommendations, particularly for hold, underperform and sell recommendations. We also find evidence that initiating recommendations made by higher-reputation brokers and those made in the absence of a management earnings forecast attract different share price responses. Finally, we find that share price responses to initiating recommendations, conditional on the market consensus recommendation, are significantly different to continuing recommendations. [source] Does corporate governance transparency affect the accuracy of analyst forecasts?ACCOUNTING & FINANCE, Issue 5 2006Gauri Bhat M4; O1 Abstract Using country-level proxies for corporate governance transparency, this paper investigates how differences in transparency across 21 countries affect the average forecast accuracy of analysts for the country's firms. The association between financial transparency and analyst forecast accuracy has been well documented in previous published literature; however, the association between governance transparency and analyst forecast accuracy remains unexplored. Using the two distinct country-level factors isolated by Bushman et al. (2004), governance transparency and financial transparency, we investigate whether corporate governance information impacts on the accuracy of earnings forecasts over and above financial information. We document that governance transparency is positively associated with analyst forecast accuracy after controlling for financial transparency and other variables. Furthermore, our results suggest that governance-related disclosure plays a bigger role in improving the information environment when financial disclosures are less transparent. Our empirical evidence also suggests that the significance of governance transparency on analyst forecast accuracy is higher when legal enforcement is weak. [source] High-involvement work practices and analysts' forecasts of corporate earningsHUMAN RESOURCE MANAGEMENT, Issue 4 2006George S. Benson Research has shown that high-involvement work practices are positively related to corporate financial performance. However, it is unknown if investors are able to use information on high-involvement practices to predict the performance of specific companies. In this study, we examine earnings forecasts for a sample of Fortune 1000 firms and find professional stock analysts consistently underestimated the earnings of firms that made greater use of high-involvement practices during the 1990s. Based on data collected from newspaper articles and annual reports, we argue that these lower estimates resulted from a lack of information on innovative HR practices. Recommendations to managers for disseminating information on and leveraging highinvolvement HR practices are discussed. © 2006 Wiley Periodicals, Inc. [source] The Allowance for Uncollectible Accounts, Conservatism, and Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2010SCOTT B. JACKSON ABSTRACT We study the interrelation between conservatism and earnings management by examining the allowance for uncollectible accounts and its income statement counterpart, bad debt expense. We find that the allowance is conservative and that it has become more conservative over time. Conservatism may, however, facilitate earnings management. We find that firms manage bad debt expense downward (and even record,income-increasing,bad debt expense) to meet or beat analysts' earnings forecasts and that conservatism accentuates the extent to which firms manage bad debt expense. Further, we find that firms manage bad debt expense downward by drawing down previously recorded over-accruals of bad debt expense that have accumulated on the balance sheet. An implication of our study is that tighter limits on the amount by which firms are permitted to understate net assets may reduce their ability to manage earnings. [source] Do Family Firms Provide More or Less Voluntary Disclosure?JOURNAL OF ACCOUNTING RESEARCH, Issue 3 2008SHUPING CHEN ABSTRACT We examine the voluntary disclosure practices of family firms. We find that, compared to nonfamily firms, family firms provide fewer earnings forecasts and conference calls, but more earnings warnings. Whereas the former is consistent with family owners having a longer investment horizon, better monitoring of management, and lower information asymmetry between owners and managers, the higher likelihood of earnings warnings is consistent with family owners having greater litigation and reputation cost concerns. We also document that family ownership dominates nonfamily insider ownership and concentrated institutional ownership in explaining the likelihood of voluntary disclosure. Using alternative proxies for the founding family's presence in the firm leads to similar results. [source] Effect of Analysts' Optimism on Estimates of the Expected Rate of Return Implied by Earnings ForecastsJOURNAL OF ACCOUNTING RESEARCH, Issue 5 2007PETER D. EASTON ABSTRACT Recent literature has used analysts' earnings forecasts, which are known to be optimistic, to estimate implied expected rates of return, yielding upwardly biased estimates. We estimate that the bias, computed as the difference between the estimates of the implied expected rate of return based on analysts' earnings forecasts and estimates based on current earnings realizations, is 2.84%. The importance of this bias is illustrated by the fact that several extant studies estimate an equity premium in the vicinity of 3%, which would be eliminated by the removal of the bias. We illustrate the point that cross-sample differences in the bias may lead to the erroneous conclusion that cost of capital differs across these samples by showing that analysts' optimism, and hence, bias in the implied estimates of the expected rate of return, differs with firm size and with analysts' recommendation. As an important aside, we show that the bias in a value-weighted estimate of the implied equity premium is 1.60% and that the unbiased value-weighted estimate of this premium is 4.43%. [source] The Association between Corporate Boards, Audit Committees, and Management Earnings Forecasts: An Empirical AnalysisJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2005IRENE KARAMANOU ABSTRACT We study how corporate boards and audit committees are associated with voluntary financial disclosure practices, proxied here by management earnings forecasts. We find that in firms with more effective board and audit committee structures, managers are more likely to make or update an earnings forecast, and their forecast is less likely to be precise, it is more accurate, and it elicits a more favorable market response. Together, our empirical evidence is broadly consistent with the notion that effective corporate governance is associated with higher financial disclosure quality. [source] Disclosure Practices, Enforcement of Accounting Standards, and Analysts' Forecast Accuracy: An International StudyJOURNAL OF ACCOUNTING RESEARCH, Issue 2 2003Ole-Kristian Hope Using a sample from 22 countries, I investigate the relations between the accuracy of analysts' earnings forecasts and the level of annual report disclosure, and between forecast accuracy and the degree of enforcement of accounting standards. I document that firm-level disclosures are positively related to forecast accuracy, suggesting that such disclosures provide useful information to analysts. I construct a comprehensive measure of enforcement and find that strong enforcement is associated with higher forecast accuracy. This finding is consistent with the hypothesis that enforcement encourages managers to follow prescribed accounting rules, which, in turn, reduces analysts' uncertainty about future earnings. I also find evidence consistent with disclosures being more important when analyst following is low and with enforcement being more important when more choice among accounting methods is allowed. [source] Investor and Analyst Reactions to Earnings Announcements of Related Firms: An Empirical AnalysisJOURNAL OF ACCOUNTING RESEARCH, Issue 5 2002Sundaresh Ramnath In this article I examine the response of investors and analysts of nonannouncing firms to the earnings report of the first announcers in the industry. The error in the earnings forecast of the first announcer is found to be informative about the errors in the contemporaneous earnings forecasts of subsequent announcers in the industry. However, investors and analysts do not appear to fully incorporate the information from the first announcers' news in their revised earnings expectations for subsequent announcers. This apparent underreaction to the first announcers' news leads to predictable stock returns for subsequent announcers in the days following the first announcement. Results of this study can be seen as further evidence of investor and analyst underreaction to publicly available information. [source] The Effect of Earnings Forecasts on Earnings ManagementJOURNAL OF ACCOUNTING RESEARCH, Issue 3 2002Sunil Dutta We develop a theory of the association between earnings management and voluntary management forecasts in an agency setting. Earnings management is modeled as a "window dressing" action that can increase the firm's reported accounting earnings but has no impact on the firm's real cash flows. Earnings forecasts are modeled as the manager's communication of the firm's future cash flows. We show that it is easier to prevent the manager from managing earnings if he is asked to forecast earnings. We also show that earnings management is more likely to follow high earnings forecasts than low earnings forecasts. Finally, our analysis shows that shareholders may not find it optimal to prohibit earnings management. Earlier results rationalize earnings management by violating some assumption underlying the Revelation Principle. By contrast, in our model the principal can make full commitments and communication is unrestricted. Nonetheless, earnings management can be beneficial as it reduces the cost of eliciting truthful forecasts. [source] High-Technology Intangibles and Analysts' ForecastsJOURNAL OF ACCOUNTING RESEARCH, Issue 2 2002Orie E. Barron This study examines the association between firms' intangible assets and properties of the information contained in analysts' earnings forecasts. We hypothesize that analysts will supplement firms' financial information by placing greater relative emphasis on their own private (or idiosyncratic) information when deriving their earnings forecasts for firms with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts' forecasts, measured as the correlation in analysts' forecast errors, is negatively associated with a firm's level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm's future earnings, which we also find to be higher for firms with high levels of internally generated (and expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm's intangible assets, we also expect and find that the degree to which the mean forecast aggregates private information and is more accurate than an individual analyst's forecast increases with a firm's intangible assets. Finally, additional analysis reveals that lower levels of analyst consensus are associated with high-technology manufacturing companies, and that this association is explained by the relatively high R&D expenditures made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers. [source] | |||||||||||||||||||||||||