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
Date Written: 1998
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
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