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
Date Written: July 13, 2021
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: Suggested Citation