Does Revenue-Expense Matching Play a Differential Role in Analysts’ Earnings and Revenue Forecasts?

The British Accounting Review, Forthcoming

58 Pages Posted: 15 Jul 2021

See all articles by Robert Kim

Robert Kim

University of Massachusetts Boston

Sangwan Kim

University of Massachusetts Boston

Date Written: July 13, 2021

Abstract

This paper investigates whether matching has differential implications for the accuracy of analysts’ earnings and revenue forecasts. We construct a novel measure of firm-level matching and document that matching improves analysts’ earnings forecasts to a greater extent than their revenue forecasts. We also document matching’s differential impact on analysts’ earnings and sales forecasts by proposing a new count metric capturing a wedge in the accuracy of earnings and revenue forecasts. In additional tests, we report that the differential impact of matching is less (more) pronounced in a situation where the balance sheet (income statement) orientation likely dominates. We also report that matching’s differential role is weaker (stronger) when firms have high intangible intensity (analysts have appropriate resources or expertise). In short window tests, matching’s role in analysts’ forecast revisions is more pronounced for earnings than sales forecasts. Overall, these results show how analysts benefit from better revenue-expense matching.

Keywords: Analyst forecasts. Forecast accuracy. Matching. Predictive value. Revenue forecasts.

JEL Classification: G14. M41.

Suggested Citation

Kim, Robert and Kim, Sangwan, Does Revenue-Expense Matching Play a Differential Role in Analysts’ Earnings and Revenue Forecasts? (July 13, 2021). The British Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3885720

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

Sangwan Kim (Contact Author)

University of Massachusetts Boston ( email )

100 Morrissey Blvd.
Boston, MA 02125
United States

HOME PAGE: http://www.umb.edu/faculty_staff/bio/sangwan_kim

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