A Study on the Relationship between Analysts’ Cash Flow Forecasts Issuance and Accounting Information: Evidence from Korea

Abstract

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.

A Forecasting Model for Economic Growth and CO2 Emission Based on Industry 4.0 Political Policy under the Government Power: Adapting a Second-Order Autoregressive-SEM

“…Moreover, the second order autoregressive-SEM, as measured by MAPE and RMSE, outperformed other models, ARIMA model, gray model, ANN model, BP model, and ML model, used by the government as a tool for formulating policies for Thailand in the past. Hence, the second order autoregressive-SEM is found suitable to use for a long-term forecasting (2020-2035), as claimed by Oh and Shin [16] under the title of A Study on the Relationship between Analysts Cash Flow Forecasts Issuance and Accounting Information, Jiang et al [41] under the title of Comparison of Forecasting India's Energy Demand Using an MGM, ARIMA Model, MGM-ARIMA Model, and BP Neural Network Model, Wang et al [42] under the title of Prediction of the Energy Demand Trend in Middle Africa-A Comparison of MGM, MECM, ARIMA and BP Model, Ma et al [43] under the title of Predicting Coal Consumption in South Africa Based on Linear (Metabolic Grey Model), Nonlinear (Non-Linear Grey Model), and Combined (Metabolic Grey Model-Autoregressive Integrated Moving Average Model) Models, Boyd et al [44] under the title of Influent Forecasting for Wastewater Treatment Plants in North America, Al-Douri et al [45] under the title of Time Series Forecasting Using a Two-Level Multi-Objective Genetic Algorithm: A Case Study of Maintenance Cost Data for Tunnel Fans, and Alsharif et al [46] under the title of Time Series ARIMA Model for Prediction of Daily and Monthly Average Global Solar Radiation: The Case Study of Seoul, South Korea.…”

“…There have been a number of studies in this area of research, meaning that this paper is well-furnished with existing resources. Among the many studies, Oh and Shin [16] investigated the future cash flow forecast information given by accounting and financial analysts of Korean listed firms for the years 2011 to 2015. Their findings indicate that the existence of an information-rich environment can reduce information asymmetry between the manager and the investor.…”

The Impact of Operating Cash Flow in Decision-Making of Individual Investors in Vietnam’s Stock Market

“…Research on the influence of cash flow on investor decisions is limited. Imhof and Seavey (2018), Oh and Shin (2019) examined the importance of investors' cash flow and earnings forecast. The results show that investors are more interested in cash flow forecasting information for economic decision-making.…”

Do Analysts’ Cash Flow Forecasts Improve Firm Value?

“…The more information that is provided to capital market participants and the more accurate that information is, the less information asymmetry there will be in the capital market. Financial analysts provide additional information to capital market participants by providing cash flow forecasts (Call et al 2009;In et al 2017;Oh and Shin 2019).…”

“…Financial analysts' cash flow forecasts play a role in compensating for low earnings quality (DeFond and Hung 2003;Shin and Oh 2014). They increase the accuracy of earnings forecasting (Call et al 2009;Oh and Shin 2019) and their positive effects reportedly include reducing asymmetry (Call et al 2009; Oh and Shin 2019) and capital costs (Jung 2015). On the negative side, it has been claimed that they are merely an extension of earnings forecasting and that the information they provide is of limited utility (Givoly et al 2009;Bilinski 2014).…”