Can Securities Analysts Forecast Intangible Firms’ Earnings?
Posted: 6 Dec 2011
Date Written: August 11, 2011
Abstract
This paper assesses the performance of securities analysts in forecasting the future earnings of intangible firms. The assessment is relative to extrapolative time-series models of earnings forecasts. The paper’s results show that the forecast errors produced by both analysts and extrapolative models are positively associated with intangibles that are above the industry norm, consistent with the difficulty of processing complex intangible information. However, the impact of intangibles on extrapolative models’ forecast errors is stronger than on analysts’. This finding is consistent with analysts’ better ability relative to extrapolative models to forecast the earnings of intangible firms, and with analysts’ ability to process intangible information.
Keywords: financial analysts, earnings forecasts, intangible assets, information complexity, time series
JEL Classification: M40, M41
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