Abstract
We find that analysts' forecast errors are predicted by past accounting accruals (adjustments to cash flows to obtain reported earnings) among both equity issuers and non-issuers. Analysts are more optimistic for the subsequent four years for issuers reporting higher issue-year accruals. The predictive power is greater for discretionary accruals than non-discretionary accruals, and is independent of the presence of an underwriting affiliation. Predicted forecast errors from accruals partially explain the long-term underperformance of new issuers. The predictability of forecast errors also for non-issuers with high accruals suggests that analysts' credulity about accruals management more generally contributes to market inefficiency.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
