Accounting Policy Disclosures and Analysts' Forecasts

Abstract:     
Using an international sample, I investigate whether the extent of firms' disclosure of their accounting policies in the annual report is associated with properties of analysts' earnings forecasts. Controlling for firm - and country - level variables, I find that the level of accounting policy disclosure is significantly negatively related to forecast dispersion and forecast error. In particular, I find that accounting policy disclosures are incrementally useful to analysts over and above all other annual report disclosures. These findings suggest that accounting policy disclosures reduce uncertainty about forecasted earnings. I find univariate but not multivariate support for the hypothesis that accounting policy disclosures are especially helpful to analysts in environments where firms can choose among a larger set of accounting methods.

Number of Pages in PDF File: 36

Keywords: accounting policy disclosures, financial analysts, forecast dispersion and error, international

JEL Classification: M41, G14, G29

working papers series