International Variation in Accounting Measurement Rules and Analysts’ Earnings Forecast Errors

Journal of Business Finance and Accounting, Vol. 25, Nos. 9/10, 1998

Posted: 26 Apr 2014

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Lee-Seok Hwang

Seoul National University - College of Business Administration

Ching-Lih Jan

California State University, East Bay

Date Written: 1998

Abstract

We theorize that accounting systems affect analysts’ forecast accuracy through changes in earnings variability. We argue that the matching and historical cost principles reduce earnings variability, and hence, reduce analysts’ earnings forecast errors. We also argue that restricting the choice of accounting methods can result in larger forecast errors. We argue that more informative disclosure environments should reduce forecast errors. We test whether variation in these factors across countries explain variation in analysts’ earnings forecast bias and accuracy. Our results indicate that these characteristics of financial accounting systems are complements, and that they affect financial analysts’ earnings forecast errors.

Keywords: accrual accounting, cross-country comparisons, earnings unpredictability, tax and financial alignment, Random Walk model

Suggested Citation

Basu, Sudipta and Hwang, Lee-Seok and Jan, Ching-Lih, International Variation in Accounting Measurement Rules and Analysts’ Earnings Forecast Errors (1998). Journal of Business Finance and Accounting, Vol. 25, Nos. 9/10, 1998. Available at SSRN: https://ssrn.com/abstract=2429020

Sudipta Basu (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Lee-Seok Hwang

Seoul National University - College of Business Administration ( email )

Seoul, 151-742
Korea, Republic of (South Korea)

Ching-Lih Jan

California State University, East Bay ( email )

25800 Carlos Bee Boulevard
Hayward, CA 94542
United States

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