25 research outputs found
Cash flow signals and analysts' earnings forecast revisions
This study investigates the incorporation of cash flow information in forecasts
of earnings made by security analysts. It extends and links two streams of
research in accounting. One stream of research has been concerned with
revisions in earnings forecasts made by analysts. What factors lead to forecast
revisions? Prior research has concentrated on investigating revisions of earnings
forecasts in response to earnings announcements. A critique of that literature
notes that there is a lack of knowledge concerning other factors that lead to
forecast revisions (Brown, et al., 1985, p. 130). This study extends that research
by identifying accounting measures beyond earnings apparently deemed
informative to analysts when predicting future earnings. The second stream
of research has been concerned with the question of whether a decomposition
of earnings into cash flow and accrual components provides incremental
information beyond that contained in earnings alone.à ¢ Is such a decomposition
informative? Is a dollar of accrual accounting earnings (worth) the same as
a dollar of cash flow? Prior research has investigated this question through
analysis of security returns. Findings have been somewhat contradictory. This
study extends that research by addressing the question of the use of earnings
component information in the previously unexamined context of the formation
of analysts' earnings forecasts. In doing so, the study provides evidence on
the signal conveyed by earnings components as perceived by one major group
of users of accounting information