Analysts’ cash flow forecasts and firms’ information environment: evidence from bid-ask spread

Abstract

Purpose This study aims to investigate whether the cash flow forecasts (CFF) of analysts can disseminate valuable information to the information environments of companies. Design/methodology/approach The author uses empirical archival methodology to conduct differences-in-difference analyses. Findings It is found that information asymmetry decreases in the treatment group following the initiation of CFF during the postperiod, which is consistent with the hypothesis of this paper. Originality/value To the best of the author’s knowledge, this study is the first among the cash flow forecast studies to demonstrate the usefulness of CFF in the mitigation of information asymmetry, a friction that is widespread in capital markets.