Financial Analysts and the Pricing of Accruals PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Financial Analysts and the Pricing of Accruals PDF full book. Access full book title Financial Analysts and the Pricing of Accruals by Mary E. Barth. Download full books in PDF and EPUB format.
Author: Mary E. Barth Publisher: ISBN: Category : Languages : en Pages : 66
Book Description
We test predictions relating to the role of financial analysts in aiding investors' assessment of the different valuation implications of the cash flow and accrual components of earnings. First, we examine whether analysts revise their forecasts of future earnings in anticipation of predictable accrual reversals. Then, we examine whether share prices reflect predictable accrual reversals differently depending on analyst activity. Our findings suggest that analysts act as sophisticated information intermediaries in that some analysts are able to identify firms with less persistent accruals. However, share prices do not reflect the information conveyed by analyst forecast revisions. Rather, investors appear to expect the same persistence in earnings, regardless of its cash flow and accrual components and regardless of analyst activity, until the accruals reverse. Thus, incorporating information from analyst activity substantially improves short-term returns to an accrual-based trading strategy.
Author: Mary E. Barth Publisher: ISBN: Category : Languages : en Pages : 66
Book Description
We test predictions relating to the role of financial analysts in aiding investors' assessment of the different valuation implications of the cash flow and accrual components of earnings. First, we examine whether analysts revise their forecasts of future earnings in anticipation of predictable accrual reversals. Then, we examine whether share prices reflect predictable accrual reversals differently depending on analyst activity. Our findings suggest that analysts act as sophisticated information intermediaries in that some analysts are able to identify firms with less persistent accruals. However, share prices do not reflect the information conveyed by analyst forecast revisions. Rather, investors appear to expect the same persistence in earnings, regardless of its cash flow and accrual components and regardless of analyst activity, until the accruals reverse. Thus, incorporating information from analyst activity substantially improves short-term returns to an accrual-based trading strategy.
Author: Jennifer Francis Publisher: Now Publishers Inc ISBN: 1601981147 Category : Business & Economics Languages : en Pages : 97
Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
Author: Anwer S. Ahmed Publisher: ISBN: Category : Languages : en Pages : 38
Book Description
This study investigates whether financial analysts correctly weight cash flows, accruals and components of accruals in forecasting future earnings. This examination is in the spirit of Sloan (1996) who documents evidence that investors do not correctly distinguish between the cash flow and accrual components of earnings. We find that analysts do distinguish between accruals and cash flows although they generally underweight the information in both accruals and cash flows. More importantly, we find that analysts do not distinguish between discretionary and non-discretionary accruals even though discretionary accruals are less persistent than non-discretionary accruals. Our findings complement and extend the findings in recent studies on analyst forecast inefficiency with respect to the information in accrual and cash flow components of earnings using alternative research designs [Teoh and Wong (1998), Bradshaw, Richardson and Sloan (2000), Barth and Hutton (2000)]. Analysts are considered to play an important role as information intermediaries in educating investors about the future prospects of firms. They are trained in analyzing financial data and have industry expertise as well as detailed firm-specific knowledge through contacts with managers. Thus, one would expect analysts to correctly incorporate the information in earnings components specifically discretionary versus non-discretionary accruals. Our evidence complements evidence in recent studies that raises questions about the ability of analysts, on-average, to correctly incorporate the information in accruals and cash flows in forecasting future earnings. This in turn implies that other outsiders are also likely to find it difficult to undo earnings management via discretionary accruals and therefore provides a rationale for the existence of earnings management.
Author: Ramesh Narayana Chari Publisher: ISBN: Category : Languages : en Pages : 140
Book Description
This research investigates whether financial analysts fully incorporate the information contained in accrual and cash flow components of current earnings when forecasting future earnings. I present evidence that analysts fail to fully incorporate the implications of these components for earnings persistence in their forecasts. Analysts' appear to ignore information in past earnings to a greater extent when the magnitude of accruals in prior year earnings is large relative to cash flows. I find that information in these components can be used to improve analysts' forecasts. This improvement is most evident for firms which have a high incidence of accruals in prior year earnings. I demonstrate the economic significance of improving analysts' forecasts by implementing a trading strategy that predicts stock price changes. This trading strategy yields significantly positive risk-adjusted abnormal returns. These results suggest that analysts' forecasting inefficiency (see Mendenhall, 1991) is potentially rooted in their misperceptions about the implications of accruals and cash flows for earnings persistence. These findings are useful to accounting standard-setters and to capital markets research that uses analysts' forecasts to proxy for earnings expectations.
Author: Anwer S. Ahmed Publisher: ISBN: Category : Languages : en Pages : 46
Book Description
Prior studies find that (i) investors over-weight (or over-estimate the persistence of) past accruals and under-weight past cash flows, and (ii) analysts over-weight past accruals. We study financial analysts' and investors' assessments of the persistence of accruals and cash flows after explicitly controlling for the negative correlation between accruals and cash flows. We find that both analysts and investors under-weight past cash flows but over-weight past accruals. The accrual and cash flow effects are distinct from each other in the sense that when we control for one effect, the other effect continues to be significant. However, the cash flow effect on both forecast errors and future stock returns is much stronger, in terms of magnitude, than the accrual effect. The strength of the cash flow effect has not been generally recognized in the literature.
Author: Cheng-Few Lee Publisher: Center for PBBEFR & Airiti Press ISBN: 9868518245 Category : Business & Economics Languages : en Pages : 304
Book Description
Advances in Quantitative Analysis of Finance and Accounting (New Series) is an annual publication designed to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and the accounting profession. The papers in this volume cover a wide range of topics including corporate finance and debt management, earnings management, equity market, auditing, option pricing theory, and interest rate theory. In this volume there are eleven chapters, five of them are corporate finance and debt management: 1. Liquidity and Adverse Selection: Evidence from the Five-or-Fewer Rule Change; 2. Changing Business Environment and the Value of Relevance of Accounting Information; 3. Pricing Risky Securities in Hidden Markov-Modulated Poisson Processes; 4. An Empirical Assessment of Alternative Dividend Expectation Models; 5. Quantitative Market Risk Disclosure, Bond Default Risk and The Cost of Debt: Why Value At Risk? There are two of the other six chapters which cover interest rate theory: 1. Positive Interest Rates and Yields: Additional Serious Considerations; 2. Collapse of Dimensionality in the Interest Rate Term Structure. The remaining four chapters cover financial analysts earnings forecasts, equity market, auditing, and option pricing theory. These four papers are: 1. Investors’ Apparent Under-weighting of Financial Analysts’ Earnings Forecasts: The Role of Share Price Scaling and Omitted Risk Factors; 2. Predicting Stock Price by Applying the Residual Income Model and Bayesian Statistics; 3. Intertemporal Associations Between Non-Audit Services and Auditors’ Tendency to Allow Discretionary Accruals; 4. Put Option Portfolio Insurance vs. Asset Allocation.
Author: Cheng F. Lee Publisher: World Scientific ISBN: 981279168X Category : Business & Economics Languages : en Pages : 270
Book Description
News Professor Cheng-Few Lee ranks #1 based on his publications in the 26 core finance journals, and #163 based on publications in the 7 leading finance journals (Source: Most Prolific Authors in the Finance Literature: 1959-2008 by Jean L Heck and Philip L Cooley (Saint Joseph's University and Trinity University).Advances in Quantitative Analysis of Finance and Accounting is an annual publication designed to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting, as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and accounting profession.The chapters in this volume cover a wide range of important topics, including corporate finance and debt management, earnings management, options and futures, equity market, and portfolio diversification. These topics are very useful for both academicians and practitioners in the area of finance.
Author: Sundaresh Ramnath Publisher: Now Publishers Inc ISBN: 1601981627 Category : Business & Economics Languages : en Pages : 125
Book Description
Financial Analysts' Forecasts and Stock Recommendations reviews research related to the role of financial analysts in the allocation of resources in capital markets. The authors provide an organized look at the literature, with particular attention to important questions that remain open for further research. They focus research related to analysts' decision processes and the usefulness of their forecasts and stock recommendations. Some of the major surveys were published in the early 1990's and since then no less than 250 papers related to financial analysts have appeared in the nine major research journals that we used to launch our review of the literature. The research has evolved from descriptions of the statistical properties of analysts' forecasts to investigations of the incentives and decision processes that give rise to those properties. However, in spite of this broader focus, much of analysts' decision processes and the market's mechanism of drawing a useful consensus from the combination of individual analysts' decisions remain hidden in a black box. What do we know about the relevant valuation metrics and the mechanism by which analysts and investors translate forecasts into present equity values? What do we know about the heuristics relied upon by analysts and the market and the appropriateness of their use? Financial Analysts' Forecasts and Stock Recommendations examines these and other questions and concludes by highlighting area for future research.
Author: Mary E. Barth
Author: Mary E. Barth
Author: Mary E. Barth
Author: Jennifer Francis
Author: Anwer S. Ahmed
Author: Ramesh Narayana Chari
Author: Anwer S. Ahmed
Author: Cheng-Few Lee
Author: Werner Fransiscus Marcel De Bondt
Author: Cheng F. Lee
Author: Sundaresh Ramnath