Are Analysts’ Cash Flow Forecasts Associated with Improved Earnings Quality? Australian Evidence

29 Pages Posted: 17 Jan 2019

See all articles by Jeffrey Coulton

Jeffrey Coulton

UNSW Business School

Naibuka Saune

University of Technology Sydney (UTS)

Stephen L. Taylor

University of Technology Sydney; Financial Research Network (FIRN)

Date Written: November 2018

Abstract

We investigate the extent to which the provision by sell side analysts of cash flow forecasts incremental to earnings forecasts has an impact on the quality of Australian firms’ financial reporting. Using two separate and distinct indicators of earnings quality, we consistently fail to find evidence of any improvement in the quality of financial reporting following analysts’ provision of cash flow forecasts. Our results contrast with the argument by Healy and Palepu (2001) that sell side analysts play an important role in monitoring the quality of financial reporting but are consistent with the claim that sell side analysts’ cash flow forecasts lack sophistication (Givoly et al. 2009).

Keywords: benchmark beating, accruals, overvaluation, earnings management

JEL Classification: G11, G35, M41

Suggested Citation

Coulton, Jeffrey J. and Saune, Naibuka and Taylor, Stephen L., Are Analysts’ Cash Flow Forecasts Associated with Improved Earnings Quality? Australian Evidence (November 2018). 2019 Financial Markets & Corporate Governance Conference, Available at SSRN: https://ssrn.com/abstract=3317291 or http://dx.doi.org/10.2139/ssrn.3317291

Jeffrey J. Coulton (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293855811 (Phone)
+93855925 (Fax)

Naibuka Saune

University of Technology Sydney (UTS) ( email )

Accounting Discipline Group
School of Business
Sydney, New South Wales 2007
Australia
95143110 (Phone)

Stephen L. Taylor

University of Technology Sydney ( email )

UTS Business School
PO Box 123 Broadway
Sydney, NSW 2007
Australia
61295143437 (Phone)
61295143513 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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