The Informativeness of Analysts' Cash Flow Forecasts: International Evidence
China Accounting and Finance Review 23 (1): 70-91.
Posted: 11 Jun 2021 Last revised: 24 Jul 2022
Date Written: January 1, 2021
In an international setting, this study investigates the information content of analysts’ cash flow forecasts by examining the immediate market reaction to analysts’ cash flow forecast revisions. Using a large sample from 57 countries or jurisdictions over the period 1994 to 2018, we find that when cash flow forecasts are revised along with earnings forecasts, there is a significant market reaction to analysts’ cash flow forecast revisions incremental to the reaction to earnings forecast revisions. Using the accrual index based on the sample in the pre-IFRS period, we find that market reaction to cash flow (earnings) forecasts decreases (increases) in countries with more extensive use of accrual accounting. This suggests that cash flow forecasts are utilised by investors to a greater extent when cash flow information is key to their valuations and that earnings forecast information is valued more when accrual accounting is more widely used. Finally, using a difference-in-differences design, we document that investors react to analysts’ cash flow forecast revisions more strongly after mandatory IFRS adoption, which is consistent with analysts being able to provide a higher quality of forecasts after IFRS adoption.
Keywords: Analysts’ Cash Flow Forecasts, Market Reaction, International Financial Reporting Standards (IFRS)
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