Analysts’ Revenue Forecasts and Discretionary Revenues

43 Pages Posted: 9 Jan 2019 Last revised: 6 Apr 2022

See all articles by Shih-Chu Chou

Shih-Chu Chou

San Francisco State University

Sunay Mutlu

Kennesaw State University - Michael J. Coles College of Business

Weiwei Wang

Weber State University (WSU) - Goddard School of Business and Economics

Date Written: April 6, 2022

Abstract

We investigate the disciplining role of analysts’ revenue forecasts on firms’ discretionary revenues. We analyze quarterly data and find evidence that initiation of analysts’ revenue forecasts reported in IBES is associated with a decrease in the magnitude of discretionary revenues. Our results are robust to alternative definitions of discretionary revenues. The evidence is consistent with the role of financial analysts in corporate governance. Further analyses show that accounts receivable is the primary accrual component that is affected by analysts’ revenue forecasts and that firms receiving more analysts’ revenue forecasts report a lower level of discretionary revenues. We use a placebo test with analysts’ cash flow forecasts to indicate that the change of discretionary revenues is a response specifically to revenue forecasts. We also provide additional tests that address endogeneity concerns.

Keywords: Analysts’ Revenue Forecasts, Revenues, Accrual Management, Discretionary Revenues

JEL Classification: G29, M41

Suggested Citation

Chou, Shih-Chu and Mutlu, Sunay and Wang, Weiwei, Analysts’ Revenue Forecasts and Discretionary Revenues (April 6, 2022). Available at SSRN: https://ssrn.com/abstract=3295970 or http://dx.doi.org/10.2139/ssrn.3295970

Shih-Chu Chou

San Francisco State University

1600 Holloway Avenue
San Francisco, CA 94132
United States

Sunay Mutlu (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Kennesaw, GA 30144
United States

Weiwei Wang

Weber State University (WSU) - Goddard School of Business and Economics ( email )

3801 University Circle
Ogden, UT 84408
United States

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