The Influence of Accounting Changes on Financial Analysts' Forecast Accuracy and Forecasting Superiority: Evidence from the Netherlands

Posted: 13 Jun 2005

See all articles by Erik Peek

Erik Peek

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Erasmus Research Institute of Management (ERIM)

Abstract

This study assesses the influence of discretionary accounting changes on financial analysts' individual forecast errors in the Netherlands from 1988 to 1999. It contributes to previous research by examining whether accounting changes (1) influence analysts' earnings forecast accuracy; and (2) change analysts' forecasting superiority relative to a mechanical earnings prediction model because of the change in the time series and composition of earnings. The empirical results indicate that changes in accounting procedures can significantly affect analysts' forecast accuracy and forecasting advantage, conditional on the change-year effect, prior disclosure, and the type of change. Specifically, this study finds that in the year that firms adopt accounting changes with a material effect on earnings before extraordinary items, analysts' forecast accuracy significantly worsens if the changes have not been previously disclosed. Further, in the earliest years after the adoption of changes from current cost accounting to historical cost accounting and changes from expensing to capitalization analysts' forecast accuracy and forecast superiority significantly improves, whereas analysts' forecast accuracy and superiority significantly worsens after the adoption of other changes.

Keywords: Accounting changes, financial analysts, forecast accuracy, earnings predictability

JEL Classification: M41, M43, M44, G29

Suggested Citation

Peek, Erik, The Influence of Accounting Changes on Financial Analysts' Forecast Accuracy and Forecasting Superiority: Evidence from the Netherlands. European Accounting Review, Vol. 14, No. 2, 2005. Available at SSRN: https://ssrn.com/abstract=740926

Erik Peek (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

Burg Oudlaan 50
Room T08-53
3062 PA Rotterdam, 3062 PA
Netherlands

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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