Security Analysts, Cash Flow Forecasts, and Turnover

Posted: 2 Dec 2011 Last revised: 10 Aug 2014

See all articles by Shail Pandit

Shail Pandit

University of Illinois at Chicago; University of Illinois at Chicago

Richard H. Willis

Vanderbilt University - Accounting

Ling Zhou

University of New Mexico

Abstract

We examine the relation between security analyst turnover and the relative accuracy of their annual earnings and cash flow forecasts. Controlling for self-selection in an analyst’s decision to issue a cash flow forecast, we find that relatively more accurate earnings and cash flow forecasts reduce the probability of turnover. Relative earnings forecast accuracy decreases the probability of turnover more than relative cash flow forecast accuracy. We conduct two cross-sectional tests. We find that relative cash flow forecast accuracy is more important in the analyst’s career outcome when cash flow forecasts are potentially more useful to investors. We find that relative cash flow forecast accuracy is more heavily weighted in the career outcome when the number of other analysts providing cash flow forecasts for the firm is larger. This finding is consistent with economic intuition that relative performance evaluation is more effective when larger groups of individuals are compared.

Keywords: Earnings forecasting, Econometric models, Evaluating forecasts, Forecasting profession, Monitoring forecasts

JEL Classification: G14, M41

Suggested Citation

Pandit, Shailendra and Pandit, Shailendra and Willis, Richard H. and Zhou, Ling, Security Analysts, Cash Flow Forecasts, and Turnover. International Journal of Forecasting, Vol. 28. pp. 874-890, 2012, Available at SSRN: https://ssrn.com/abstract=1966771 or http://dx.doi.org/10.2139/ssrn.1966771

Shailendra Pandit

University of Illinois at Chicago ( email )

601 South Morgan Street
2323 University Hall
Chicago, IL 60607
United States
(312) 355-1331 (Phone)
(312) 996-4520 (Fax)

HOME PAGE: http://business.uic.edu/faculty/shailendra-shail-pandit

University of Illinois at Chicago ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States
(312) 355-1331 (Phone)
(312) 996-4520 (Fax)

HOME PAGE: http://business.uic.edu/faculty/shailendra-shail-pandit

Richard H. Willis (Contact Author)

Vanderbilt University - Accounting ( email )

Nashville, TN 37203
United States
615-343-1050 (Phone)
615-343-7177 (Fax)

Ling Zhou

University of New Mexico ( email )

107 Humanitites Building
Albuquerque, NM 87131-1221
United States
(505)277-0335 (Phone)

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