Are analysts’ earnings forecasts more accurate when accompanied by cash flow forecasts?

Andrew C. Call (), Shuping Chen () and Yen H. Tong ()
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Andrew C. Call: University of Georgia
Shuping Chen: University of Texas
Yen H. Tong: Nanyang Technological University

Review of Accounting Studies, 2009, vol. 14, issue 2, No 10, 358-391

Abstract: Abstract We examine whether analysts’ earnings forecasts are more accurate when they also issue cash flow forecasts. We find that (i) analysts’ earnings forecasts issued together with cash flow forecasts are more accurate than those not accompanied by cash flow forecasts, and (ii) analysts’ earnings forecasts reflect a better understanding of the implications of current earnings for future earnings when they are accompanied by cash flow forecasts. These results are consistent with analysts adopting a more structured and disciplined approach to forecasting earnings when they also issue cash flow forecasts. Finally, we find that more accurate cash flow forecasts decrease the likelihood of analysts being fired, suggesting that cash flow forecast accuracy is relevant to analysts’ career outcomes.

Keywords: Analysts; Earnings forecasts; Cash flow forecasts; Forecast accuracy; Analyst turnover (search for similar items in EconPapers)
JEL-codes: G24 G29 M41 (search for similar items in EconPapers)
Date: 2009
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DOI: 10.1007/s11142-009-9086-7

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