High-Technology Intangibles and Analysts' Forecasts

Posted: 4 Dec 2001

See all articles by Orie E. Barron

Orie E. Barron

Pennsylvania State University

Donal Byard

City University of New York - Stan Ross Department of Accountancy

Charles Kile

University of Alabama at Huntsville - Department of Accounting and Management Information Systems

Eddie Riedl

Boston University - Questrom School of Business

Abstract

This study examines the association between firms' intangible assets and properties of the information contained in analysts' earnings forecasts. We hypothesize that analysts will supplement firms' financial information by placing greater relative emphasis on their own private (or idiosyncratic) information when deriving their earnings forecasts for firms with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts' forecasts, measured as the correlation in analysts' forecast errors, is negatively associated with a firm's level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm's future earnings, which we also find to be higher for firms with high levels of internally generated (and expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm's intangible assets, we also expect and find that the degree to which the mean forecast aggregates private information and is more accurate than an individual analyst's forecast increases with a firm's intangible assets. Finally, additional analysis reveals that lower levels of analyst consensus are associated with high-technology manufacturing companies, and that this association is explained by the relatively high R&D expenditures made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers.

JEL Classification: M41, M45, G29

Suggested Citation

Barron, Orie E. and Byard, Donal and Kile, Charles and Riedl, Edward J., High-Technology Intangibles and Analysts' Forecasts. Journal of Accounting Research, Vol. 40, No. 2, May 2002. Available at SSRN: https://ssrn.com/abstract=290900

Orie E. Barron

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-863-3230 (Phone)
814-863-8393 (Fax)

Donal Byard (Contact Author)

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States
646-312-3187 (Phone)
646-312-3161 (Fax)

Charles Kile

University of Alabama at Huntsville - Department of Accounting and Management Information Systems ( email )

ASB 375
Huntsville, AL 35899
United States
256-824-6826 (Phone)

Edward J. Riedl

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-2317 (Phone)

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