The Quality of Analysts' Cash Flow Forecasts

Abstract

This study examines properties of analysts' cash flow forecasts and compares them to those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are less accurate than analysts' earnings forecasts and improve at a slower rate during the forecast period. Further, cash flow forecasts appear to be a naïve extension of analysts' earnings forecasts, thus providing limited information on expected changes in working capital. We also find that analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock returns. Finally, estimating expected accruals as the difference between analysts' earnings forecasts and their cash flow forecasts does not result in a better detection of earnings management than achieved by commonly used accrual models.

Flexibility in Cash Flow Classification Under IFRS: Determinants and Consequences

“…We find that differences in cash classification choices affect results when the cash flow prediction model is based on sales (Dechow et al 1998;Roychowdhury 2006) but not when the cash flow prediction model is based on cash flows (Barth et al 2001;Givoly et al 2009). One implication is that the latter type of model may be more useful in the international context in which flexibility in cash-flow classification exists.…”

La réactivité des analystes financiers en temps de crise au sein de la zone Euro

“…Dans cette étude, nous nous intéressons aux prévisions de bénéfice par action parce que leurs révisions sont les plus suivies (Givoly et al [2009 …”

The Role of Additional Non-EPS Forecasts: Evidence Using Pre-Tax Forecasts

“…This evidence is consistent with the 'demand hypothesis' which predicts analysts provide additional forecasts when investors demand them. However, a recent paper by Givoly et al (2009) when it is demanded. Consequently, I predict analysts' decision to disclose pre-tax forecasts is associated with investor demand (the 'demand hypothesis').…”

“…Over the past decade, researchers have begun to focus on non-EPS forecasts such as cash flow forecasts and sales forecasts. 6 However, the evidence regarding the information content of disaggregated forecasts is fairly nacent and contains mixed results (e.g., Givoly et al, 2009 EBIT, and pre-tax income forecasts. While the frequency of these forecasts varies widely, these additional forecasts are becoming more common.…”

“…I examine the determinants of pre-tax earnings forecasts for two reasons. First, mixed evidence has been provided regarding the determinants of non-EPS forecasts (e.g., DeFond and Hung (2003), Givoly et al (2009)). Second, because pre-tax coverage is not random, I use the determinants of pre-tax forecast coverage to address the issue of self-selection in subsequent analyses.…”