The Relevance of Analysts' Earnings Forecasts in Japan

28 Pages Posted: 28 Mar 2006

See all articles by Vicentiu Covrig

Vicentiu Covrig

California State University, Northridge - Department of Finance, Financial Planning and Insurance

Buen Sin Low

Nanyang Technological University (NTU) - Division of Banking & Finance

Abstract

This study examines the role of financial analysts in equity valuation in Japan by comparing the relevance of financial analysts' earnings forecasts, over financial statement information, to investors' decisions. We find that the value-relevance of a set of accounting variables is very modest, but the incremental contribution of analysts' forecasts is very significant. This is in line with the expectation that the skill and expertise of analysts are more valuable in markets with poor financial disclosure, such as Japan. We also find that the importance of the financial statements increases over time while the importance of the analysts' forecasts does not change. We also provide evidence of the effect of Japanese corporate groupings, keiretsu, on the informativeness of accounting signals and earnings forecasts. The results show that the contribution of accounting variables to valuation is lower for keiretsu firms, which supports the exclusionary hypothesis that companies which are a part of keiretsu, disclose less information than do non-keiretsu companies. The analysts' forecasts are equally important for investors in both types of firms.

Suggested Citation

Covrig, Vicentiu and Low, Buen Sin, The Relevance of Analysts' Earnings Forecasts in Japan. Journal of Business Finance & Accounting, Vol. 32, No. 7-8, pp. 1437-1463, September 2005. Available at SSRN: https://ssrn.com/abstract=877430 or http://dx.doi.org/10.1111/j.0306-686X.2005.00635.x

Vicentiu Covrig

California State University, Northridge - Department of Finance, Financial Planning and Insurance ( email )

Northridge, CA 91330-8379
United States

Buen Sin Low (Contact Author)

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

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