Do Analysts’ Cash Flow Forecasts Improve Firm Value?

Abstract

We examine whether analysts’ cash flow forecasts improve firm value. First, we analyze whether the joint issuance of financial analysts’ earnings and cash flow forecasts improve firm value. Second, we analyze whether the quality of analysts’ cash flow forecasts improve firm value. The empirical results of our study are as follows. First, the joint issuance of analysts’ earnings and cash flow forecasts has a significantly positive effect on firm value; providing cash flow forecasts reduces information asymmetry and increases earnings quality, thereby increasing corporate value. Second, the quality of analysts’ cash flow forecasts has a significantly positive effect on firm value; the more accurate cash flow forecasts are, the higher firm value is. Our study provides empirical evidence for that the conclusion that cash flow forecasting information produced by financial analysts provides useful information for capital market participants in economic decision making.

Firm value determinants: Panel evidence from European listed companies

“…In addition, the European companies rely on their financing to generate trust among shareholders and creditors in the companies' effort to maintain a sustained and profitable operation, followed by the distributed dividend. Considering the importance of profitability variables in financial planning, empirical analysis envisages that ROA is a positive and statistically significant factor of firm value which is consistent with the research of Oh et al (2020), Diantimala et al (2021), Salvi et al (2021), Sisodia et al (2021), Seth and Mahenthiran (2022) and Poretti and Heo (2022). However, the evaluation of ROE as a firm value determinant resulted in a statistically insignificant impact.…”

“…On the other hand, Chadha and Sharma (2015) start with large companies with lower volatility of assets and greater efficiency of performance, providing research results that indicate a significant negative relationship between company size and value of 422 listed Indian manufacturing companies over a period of 10 years. A significant negative impact of company size on the company value was also confirmed in research conducted by Willim (2015), Ali, Jan & Atta (2015), Ibrahim (2017), Huynh et al (2020), Oh et al (2020), Ullah et al (2021), Nguyen, Cuong, Nga, Trang, Nguyen and Truong (2021), Poretti and Heo (2022), Seth and Mahenthiran (2022). Analyzing the capital structure, profitability, and value of publicly quoted companies at the Nairobi Securities Exchange, Kodongo, Mokoaleli-Mokoteli and Maina, (2015) found that company size had a statistically significant impact on the company's value for small-sized companies, but this impact is insignificant for large-sized Kenyan companies.…”

“…When leverage is observed as a debt-to-equity ratio, the impact is statistically insignificant. On the other hand, in the case of observing using a debt-to-asset ratio, the effect is judged as a statistically significant predictor of firm value as was in previous research conducted by Setiawanta et al (2020), Oh et al (2020 and Diantimala et al (2021). A direct result of financial leverage oriented towards own financial funds is an enhancement in the European companies' image and corporate financial reliability.…”

“…Every variation in the capital structure, involving an increase in the share of debts in the entire sources of financing, would surely attract the attention of stakeholders. Oh et al, (2020) state that capital cost reduction leads to an increase in the company value. The model estimation results in this paper show that any increase in external debt reduces the firm Since the capital structure of the European listed companies in the sample is generally oriented towards their sources (as presented in Table 3), it could be confirmed that, on average, the companies are not over-indebted.…”

“…As an expression of company financial strength, the company value maximization is influenced by the access and availability of internal and external financing sources. Analyzing a company's value indicators provides a significant information basis for all stakeholders who want to research the factors of the company's ability to generate future income in the present value (Oh, Park, & Kim, 2020). In addition, information is provided to strengthen the competitive position and optimal use of available resources to maximize the company value.…”