Earnings forecasts: the case for combining analysts’ estimates with a cross-sectional model

Azevedo, Vitor; Bielstein, Patrick; Gerhart, Manuel

doi:10.1007/s11156-020-00902-z

Cited by 11 publications

(4 citation statements)

References 66 publications

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“…Jog and McConomy, 2003;Shi et al, 2008;B edard et al, 2016) found that the degree of underpricing fell when anticipated profits were disclosed in IPO prospectuses. A recent study by Azevedo et al (2021) offers new insights regarding constructing models for profit estimates when analysing stock price volatility and long-term performance. Such an innovative strategy for forecasting earnings significantly enhances stock price accuracy.…”

Section: Related Literature and Hypothesis Development 21 Earnings Fo...mentioning

confidence: 99%

Earnings forecast disclosures and oversubscription rates of fixed-price initial public offerings (IPOs): the case of Malaysia

Ong¹,

Mohd‐Rashid²,

Anwar³

et al. 2023

JABES

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PurposeThe main purpose of this study is to examine the disclosure of earnings forecasts in firms' prospectuses to explain investor demands or, in other words, oversubscription rates of Malaysian initial public offerings (IPOs).Design/methodology/approachOrdinary least squares and robust methods were used to examine cross-sectional data comprising 466 fixed-price IPOs reported for the period from January 2000 to February 2020 on Bursa Malaysia.FindingsThe results showed that IPOs with earnings forecasts obtained higher oversubscription rates than those without earnings forecasts. IPOs with earnings forecasts provide value-relevant signals to prospective investors about the good prospects of firms, resulting in an increase in the demand for IPO shares. For the IPO samples listed during the global financial crisis (GFC) period, IPOs with earnings forecasts had negative impacts on the oversubscription rates. These results were robust to quantile methods and the two-stage least squares method.Research limitations/implicationsThe research findings provide fresh information for investors regarding the importance of earnings forecasts as a trustworthy signal of a firm’s quality when making share subscription decisions.Practical implicationsThe regulator is advised to encourage issuers to include earnings forecasts in their prospectuses since such forecasts help to increase the demand for IPOs.Originality/valueThis study contributes to the literature by offering empirical evidence regarding the signalling impact of earnings forecast disclosures on investor demands for Malaysian IPOs. Moreover, this study provides evidence demonstrating the impact of earnings forecast disclosures on oversubscription rates of Malaysian IPOs during the GFC period.

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Section: Related Literature and Hypothesis Development 21 Earnings Fo...mentioning

confidence: 99%

Earnings forecast disclosures and oversubscription rates of fixed-price initial public offerings (IPOs): the case of Malaysia

Ong¹,

Mohd‐Rashid²,

Anwar³

et al. 2023

JABES

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“…Both models outperform the previous HVZ model. Azevedo et al (2021) have proposed a method to forecast corporate earnings [14] by employing a parsimonious cross-sectional regression model consisting of analyst forecasts of earnings, gross profits, and past stock performance, leading to a more accurate and less biased result.…”

Section: -Introductionmentioning

confidence: 99%

Discovering Future Earnings Patterns through FP-Growth and ECLAT Algorithms with Optimized Discretization

Thanathamathee

Sawangarreerak

2022

Emerg Sci J

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Future earnings indicate whether the trend of earnings is increasing or decreasing in the future of a business. It is beneficial to investors and users in the analysis and planning of investments. Consequently, this study aimed to identify future earnings patterns from financial statements on the Stock Exchange of Thailand. We proposed a novel approach based on FP-Growth and ECLAT algorithms with optimized discretization to identify associated future earnings patterns. The patterns are easy to use and interpret for the co-occurrence of associated future earnings patterns that differ from other studies that have only predicted earnings or analyzed the earnings factor from accounting descriptors. We found four strongly associated increases in earnings patterns and nine strongly associated decreases. Moreover, we also established ten accounting descriptors related to earnings: 1) %∆ in long-term debt, 2) %∆ in debt-to-equity ratio, 3) %∆ in depreciation/plant assets, 4) %∆ in operating income/total assets, 5) %∆ in working capital/total assets, 6) debt-to-equity ratio, 7) issuance of long-term debt as a percentage of total long-term debt, 8) long-term debt to equity, 9) repayment of long-term debt as a percentage of total long-term debt, and 10) return on closing equity. Doi: 10.28991ESJ-2022-06-06-07 Full Text: PDF

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“…Recently, earnings forecasts based on a cross-sectional model, which only requires firms' fundamental features such as accounting numbers, have emerged as an alternative method (Hou, van Dijk, & Zhang, 2012: hereafter HVZ). This method is widely applied to exploring the mean reversion characteristics of earnings (Fama & French, 2000), estimating the implied cost of capital (HVZ; Li & Mohanram, 2014), detecting market overreactions to analyst forecasts (So, 2013), and improving forecasts in connection with the differential persistence of earnings components (Call, Hewitt, Shevlin, & Yohn, 2016) or past analyst forecasts (Azevedo, Bielstein, & Gerhart, 2020).…”

Section: Introductionmentioning

confidence: 99%

Earnings Quality and Earnings Forecasts Based on a Cross-Sectional Model

Higashikawa¹

2020

APMAJ

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This study examined the effect of earnings quality on the performance of earnings forecasts using a cross-sectional model. Earnings quality is measured by the residuals of a regression analysis that relates working capital accruals to operating cash flows for the current, previous, and next period (SRESID), the lower the earnings quality, the larger the forecasting errors. This result holds for both bias, defined by the difference between the actual and the forecasted values, and accuracy, measured as the absolute value of bias. The relationship between earnings quality and forecasting errors does not change after controlling for other potential earnings attributes. In addition, the basic conclusion remains the same when SRESID is estimated using a time-series model, and when the look-ahead bias inherent in SRESID is removed. These findings suggest that SRESID is useful for market participants in selecting a relevant earnings forecasting model.

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Earnings forecasts: the case for combining analysts’ estimates with a cross-sectional model

Cited by 11 publications

References 66 publications

Earnings forecast disclosures and oversubscription rates of fixed-price initial public offerings (IPOs): the case of Malaysia

Earnings forecast disclosures and oversubscription rates of fixed-price initial public offerings (IPOs): the case of Malaysia

Discovering Future Earnings Patterns through FP-Growth and ECLAT Algorithms with Optimized Discretization

Earnings Quality and Earnings Forecasts Based on a Cross-Sectional Model

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