Valuation uncertainty and analysts’ use of DCF models

Shengzhong Huang (), Hongping Tan (), Xiongyuan Wang () and Changqiu Yu ()
Additional contact information
Shengzhong Huang: China University of Mining and Technology-Beijing
Hongping Tan: McGill University
Xiongyuan Wang: Zhongnan University of Economics and Law
Changqiu Yu: University of Manitoba

Review of Accounting Studies, 2023, vol. 28, issue 2, No 13, 827-861

Abstract: Abstract Using textual analysis for a large sample of analyst reports on U.S. firms, we find that analysts are more likely to use a discounted cash flow (DCF) model and to discuss more cash flow and discount rate information for firms with more uncertainty, as measured by earnings quality and firm risks. The market reactions to target price changes based on a DCF model are stronger, particularly for firms with greater valuation uncertainty and when the analysts present more cash flow and discount rate discussions. These results indicate that the analyst valuation process reflects investors’ information demand under uncertainty and has a bearing on the informativeness of analyst research.

Keywords: Uncertainty; Analysts; Investor demand; Valuation; Discounted cash flow (DCF); Cash flow; Discount rate; Textual analysis (search for similar items in EconPapers)
JEL-codes: G12 G24 G32 M41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s11142-021-09658-w Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:reaccs:v:28:y:2023:i:2:d:10.1007_s11142-021-09658-w

Ordering information: This journal article can be ordered from
http://www.springer.com/accounting/journal/11142

DOI: 10.1007/s11142-021-09658-w

Access Statistics for this article

Review of Accounting Studies is currently edited by Paul Fischer

More articles in Review of Accounting Studies from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().