Are Analysts’ Cash Flow Forecasts Useful?
Accounting and Finance, Forthcoming
48 Pages Posted: 25 Nov 2014 Last revised: 5 Mar 2015
Date Written: November 23, 2014
Abstract
This study provides evidence that the cost of equity capital decreases with the number of analysts who issue both cash flow and earnings forecasts (cash analysts). The evidence also shows that cash analysts reduce information asymmetry and predict long-term earnings more accurately than analysts who issue only earnings forecasts. Taken together, these findings suggest that cash analysts provide market participants with high-quality information and, as a result, firms benefit from cash analyst coverage in the form of a reduced cost of equity capital.
Keywords: Analysts’ Cash Flow Forecasts, Cost of Capital
JEL Classification: G24, G30
Suggested Citation: Suggested Citation