Do product market threats affect analyst forecast precision?

Marco Maria Mattei () and Petya Platikanova ()
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Marco Maria Mattei: University of Bologna
Petya Platikanova: ESADE-University Ramon Llull

Review of Accounting Studies, 2017, vol. 22, issue 4, No 6, 1628-1665

Abstract: Abstract We examine how product market threats influence the precision of analyst forecasts. Greater competitive threats may make forecasting more difficult by increasing the uncertainty regarding future cash flows and by influencing the quality of financial disclosure. Using a firm-specific measure of product market threats (i.e., fluidity), we find that analysts are more likely to be less precise forecasting earnings for highly fluid firms and that the lack of precision is not fully explained by performance volatility. Our findings further suggest that firms with fluid products have lower accruals quality and that they are more likely to withheld information regarding contract terms and sales from major customers. Cross-sectional analysis further suggests that the effect of fluidity on analyst forecasts is more pronounced when firms have flexibility in disclosure choices. Using significant changes in tariff rates as a quasi-natural experiment, we find that analyst forecast precision is significantly lower following tariff reductions.

Keywords: Security analysts; Product market threat; Information opaqueness; Cash flow volatility; G24; G28; M41; L4 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s11142-017-9415-1

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