Analysts' Dividend Forecasts
40 Pages Posted: 12 Jun 2002
Date Written: Undated
Dividends have direct cash flow implications for firms and investors, and are important for signaling reasons. Consequently, investors, analysts, and managers typically forecast future dividends and report them in various ways. We examine the accuracy of consensus dividend forecasts of Australian sell-side financial analysts published by BARCEP between 1985 and 1998. Although analysts' dividend forecasts are optimistically biased, we find they are less biased and more accurate than their earnings counterparts. Forecast accuracy is positively correlated with proxies for the amount of information available about the firm and negatively correlated with proxies for the level of uncertainty about its future operating performance. These proxy variables and other variables that control for institutional change, notably occasioned by amendments to the Australian Corporations Law, explain 10 to 15 per cent of the cross-sectional variation in the accuracy of analysts' dividend forecasts over the period 1991-1998, which is about half the explanatory power of a similar model fitted to BARCEP consensus earnings forecasts.
Keywords: security analysts, dividends, earnings, forecasts, accuracy, bias
JEL Classification: G15, G29, G35, G38, M40
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