An Empirical Analysis of Analysts' Cash Flow Forecasts
Mark L. DeFond
University of Southern California - Leventhal School of Accounting
Hong Kong University of Science & Technology (HKUST)
Journal of Accounting and Economics, Vol. 35, No. 1, pp. 73-100, April 2003
This study investigates the relatively recent and growing trend in analysts disseminating operating cash flow forecasts. Consistent with our expectations, we find that analysts tend to forecast cash flows for firms where accounting, operating and financing characteristics suggest that cash flows are likely to be useful in interpreting earnings and assessing firm viability. Specifically, we find that analysts tend to forecast cash flows for firms with (1) large accruals, (2) more heterogeneous accounting choices relative to their industry peers, (3) high earnings volatility, (4) high capital intensity, and (5) poor financial health. These findings are consistent with financial analysts responding to market-based incentives to provide market participants with value-relevant information.
Keywords: analysts' forecasts, cash flows, earnings' usefulness
JEL Classification: G29, G12, M41, N20
Date posted: January 29, 2003
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