Abstract

http://ssrn.com/abstract=1928746
 
 

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The Information Content of Accounting Disclosures for Forecasting Sales of Manufacturing Firms


Logan B. Steele


University of Connecticut

Mark A. Trombley


University of Arizona - Eller College of Management

July 25, 2012


Abstract:     
We identify accounting disclosures of manufacturing firms that may be useful for forecasting year-ahead sales and develop a forecasting model incorporating these disclosures. We find that the most useful disclosures are prior sales growth, days sales outstanding, employees, margin and order backlog. We find that our forecasting model incorporating these disclosures provides forecasting ability incremental to that from analysts’ forecasts alone. In return-based tests, we find that a strategy of buying (selling) the 20% of firms with the largest positive (negative) difference between the model-based sales growth forecasts and analysts’ sales growth forecasts results in an annualized risk-adjusted return of 6.04%. The pattern of these returns is consistent with analysts over-extrapolating prior sales growth and markets discovering the analysts’ errors during the subsequent year, and with our model identifying firms where this has occurred. We conclude that the information in accounting disclosures about future sales is not fully impounded in analysts’ forecasts or in stock prices.

Number of Pages in PDF File: 40

Keywords: Sales Forecasting, Accounting Disclosures, Analysts Forecasts

JEL Classification: M41, G14

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Date posted: September 17, 2011 ; Last revised: July 26, 2012

Suggested Citation

Steele, Logan B. and Trombley, Mark A., The Information Content of Accounting Disclosures for Forecasting Sales of Manufacturing Firms (July 25, 2012). Available at SSRN: http://ssrn.com/abstract=1928746 or http://dx.doi.org/10.2139/ssrn.1928746

Contact Information

Logan B. Steele
University of Connecticut ( email )
Storrs, CT 06269-1063
United States
Mark A. Trombley (Contact Author)
University of Arizona - Eller College of Management ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-4805 (Phone)
520-621-3742 (Fax)
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