Bond Analysts' Forecasts on Cash Flows and Earnings

60 Pages Posted: 12 Jul 2015

See all articles by Robert Kim

Robert Kim

University of Massachusetts Boston

William Kross

State University of New York (SUNY) at Buffalo - Department of Accounting

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management

Date Written: July 10, 2015

Abstract

We examine the propensity and properties of bond analysts’ forecasts on cash flows and earnings. We find that the probability to issue cash flow, relative to earnings, forecasts is greater for bond analysts than for equity analysts, consistent with the notion that cash flow, relative to earnings, information is more important to bond investors than for stock investors. In addition, bond analysts’ cash flow (earnings) forecasts are more (less) accurate than equity analysts’ cash flow (earnings) forecasts. Finally, we show that bond investors’ reaction to bond analysts’ cash flow forecast revision is greater than that to bond analysts’ earnings forecast and that bond market reacts only to bond analysts’ forecast revisions but not to equity analysts’ forecast revisions. This manifests bond investors’ stronger demand for reliable information on future cash flows than for earnings. Overall, this study enhances our understanding of bond analysts’ informational role through their forecasting activities.

Keywords: Bond Analysts, Equity Analysts, Cash Flow Forecasts, Earnings Forecasts, Forecast Error

JEL Classification: D84, G17, G24, G29, M41

Suggested Citation

Kim, Robert and Kross, William and Suk, Inho, Bond Analysts' Forecasts on Cash Flows and Earnings (July 10, 2015). Available at SSRN: https://ssrn.com/abstract=2629425 or http://dx.doi.org/10.2139/ssrn.2629425

Robert Kim

University of Massachusetts Boston ( email )

100 Morrissey Blvd.
College of Management
Boston, MA 02125
United States

HOME PAGE: http://ssrn.com/author=1376774

William Kross

State University of New York (SUNY) at Buffalo - Department of Accounting ( email )

Buffalo, NY 14260
United States

Inho Suk (Contact Author)

State University of New York (SUNY) at Buffalo - School of Management ( email )

342 Jacobs Management Center
Buffalo, NY 14260-4000
United States
716-645-3215 (Phone)

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