The impact of forecasting cash flows on enhancing analysts’ own earnings forecasts: International evidence and the effect of IFRS adoption

Abstract

AbstractUsing a large international sample from 1995 to 2018, we find that individual analysts’ earnings forecasts accompanied with cash flow forecasts are more accurate than those not accompanied with cash flow forecasts, suggesting that the findings for the United States in Call et al. (2009) apply to other countries. In addition, using a difference‐in‐differences design, we find that the positive association between cash flow forecast provisions and earnings forecast accuracy is weakened after mandatory IFRS adoption. Furthermore, we find that the reduced usefulness of forecasting cash flow for analysts’ own earnings prediction after mandatory IFRS adoption is more pronounced in countries with a common law origin and strong legal enforcement as opposed to countries with a code law origin and weak legal enforcement.