Risk information disclosure and its impact on analyst forecast accuracy

José Miguel Tirado-Beltrán,J David Cabedo-Semper

doi:10.18046/j.estger.2020.156.3774

José Miguel Tirado-Beltrán, J David Cabedo-Semper

Open Access

https://doi.org/10.18046/j.estger.2020.156.3774

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Journal: Estudios Gerenciales	Publication Date: Jul 23, 2020
License type: CC BY 4.0

Affiliation: Jaume I University

Abstract

This paper aims to analyse the influence of risk information disclosure on the accuracy of financial analysts’ earnings forecasts for the Spanish stock market. To do this, we performed a regression analysis with panel data on a sample comprised of non-financial firms listed on the Madrid Stock Exchange from 2010 to 2015. The results of the study show that risk information disclosed by firms does not help to reduce analysts’ uncertainty levels nor enable them to make more accurate forecasts of future profits. Furthermore, separately testing verified and unverified risk information disclosure confirms that there is no relationship between the risk information disclosed and the perception that analysts have on companies’ levels of risk.

Highlights

One of the accounting regulator’s main concerns is that financial statements provide useful information for users in their decision-making process
The amount of information included in financial statements has increased over the years in an attempt to meet the information needs expressed by accounting bodies and the accounting literature, with the aim of improving their usefulness for the different stakeholders (American Institute of Certified Public Accountants - AICPA, 1987; AICPA, 1994; Lev & Zarowin, 1999; Francis & Schipper, 1999)
Various accounting bodies have considered this lack of risk information and have issued rules governing the presentation of this type of information in financial statements

Summary

Introduction

One of the accounting regulator’s main concerns is that financial statements provide useful information for users in their decision-making process. Two different approaches have been used to analyse utility: a direct approach, asking users about the usefulness of risk information (Abraham, Marston, & Darby, 2012; Association of Chartered Certified Accountants (ACCA), 2014; Sarens & D’Onza, 2017); and an indirect approach, based on observing capital market reactions through analysis of the behaviour of certain market variables, such as price, trading volume, yield and spread (Campbell, Chen, Dhaliwal, Lu, & Steele, 2014; Kravet & Muslu, 2013; Hope, Hu, & Lu, 2016; Miihkinen, 2013; Nelson & Rupar, 2015; Filzen, 2015; Jorion, 2002) Results generally show that the capital market appreciates risk information, some studies report results that contradict the theoretical assumptions (Kravet & Muslu, 2013; Campbell et al, 2014)

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