Are analysts’ earnings forecasts more accurate when accompanied by cash flow forecasts?

Are analysts’ earnings forecasts more accurate when accompanied by cash flow forecasts? We examine whether analysts’ earnings forecasts are more accurate when they also issue cash flow forecasts. We find that (i) analysts’ earnings forecasts issued together with cash flow forecasts are more accurate than those not accompanied by cash flow forecasts, and (ii) analysts’ earnings forecasts reflect a better understanding of the implications of current earnings for future earnings when they are accompanied by cash flow forecasts. These results are consistent with analysts adopting a more structured and disciplined approach to forecasting earnings when they also issue cash flow forecasts. Finally, we find that more accurate cash flow forecasts decrease the likelihood of analysts being fired, suggesting that cash flow forecast accuracy is relevant to analysts’ career outcomes. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Are analysts’ earnings forecasts more accurate when accompanied by cash flow forecasts?

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-009-9086-7
Publisher site
See Article on Publisher Site

Abstract

We examine whether analysts’ earnings forecasts are more accurate when they also issue cash flow forecasts. We find that (i) analysts’ earnings forecasts issued together with cash flow forecasts are more accurate than those not accompanied by cash flow forecasts, and (ii) analysts’ earnings forecasts reflect a better understanding of the implications of current earnings for future earnings when they are accompanied by cash flow forecasts. These results are consistent with analysts adopting a more structured and disciplined approach to forecasting earnings when they also issue cash flow forecasts. Finally, we find that more accurate cash flow forecasts decrease the likelihood of analysts being fired, suggesting that cash flow forecast accuracy is relevant to analysts’ career outcomes.

Journal

Review of Accounting StudiesSpringer Journals

Published: Feb 21, 2009

References

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