scholarly journals Do Managers Manage Cash Flows in Reaction on Analysts’ Cash Flow Forecasts?

2017 ◽  
Vol null (71) ◽  
pp. 1-32
Author(s):  
심준용 ◽  
윤용석 ◽  
ChoiWooseok
Keyword(s):  
Cash Flow ◽  
Cash Flows ◽  
Cash Flow Forecasts

The Effects of Financial Statement and Informational Complexity on Analysts’ Cash Flow Forecasts

2008 ◽  
Vol 83 (4) ◽  
pp. 915-956 ◽  
Author(s):  
Leslie Hodder ◽  
Patrick E. Hopkins ◽  
David A. Wood
Keyword(s):  
Cash Flow ◽  
Forecast Error ◽  
Cash Flows ◽  
Net Income ◽  
Indirect Approach ◽  
Operating Cash Flows ◽  
Cash Flow Forecasts ◽  
Statement Of Cash Flows ◽  
Mixed Pattern ◽  
Cash Flow Forecast

ABSTRACT: We characterize the operating-activities section of the indirect-approach statement of cash flows as backward because it presents reconciling adjustments in a way that is opposite from the intuitively appealing, future-oriented, Conceptual Framework definitions of assets, liabilities, and the accruals process. We propose that the reversed-accruals orientation required in the currently mandated indirect-approach statement of cash flows is unnecessarily complex, causing information-processing problems that result in increased cash flow forecast error and dispersion. We also predict that the mixed pattern (i.e., +/−, −/+) of operating cash flows and operating accruals reported by most companies impedes investors’ ability to learn the time-series properties of cash flows and accruals. We conduct a carefully controlled experiment and find that (1) cash flow forecasts have lower forecast error and dispersion when the indirect-approach statement of cash flows starts with operating cash flows and adds changes in accruals to arrive at net income and (2) cash flow forecasts have lower forecast error and dispersion when the cash flows and accruals are of the same sign (i.e., +/+, −/−); with the sign-based difference attenuated in the forward-oriented statement of cash flows. We also conduct a quasi-experiment to test our mixed-sign versus same-sign hypotheses using archival samples of publicly available I/B/E/S and Value Line cash flow forecasts. We find that the passively observed samples of cash flow forecasts exhibit a similar pattern of mixed-sign versus same-sign forecast error as documented in our experiment.

Properties of analysts’ consensus cash flow forecasts for Australian firms

2020 ◽  
Vol 33 (1) ◽  
pp. 128-147
Author(s):  
Kamran Ahmed ◽  
Muhammad Nurul Houqe ◽  
John Hillier ◽  
Steven Crockett
Keyword(s):  
Cash Flow ◽  
Market Reaction ◽  
Forecast Error ◽  
Earnings Forecasts ◽  
Predictive Performance ◽  
Cash Flows ◽  
Content Type ◽  
Equity Pricing ◽  
Functional Efficiency ◽  
Cash Flow Forecasts

Purpose The purpose of this paper is to determine the properties of analysts’ cash flows from operations (CFO) forecast generated for Australian listed firms as a productive activity, within the wider processes of financial disclosure in Australia. Design/methodology/approach Two categories of criteria are adopted: first, basic predictive statistical performance relative to a benchmark model and earnings forecasts; and second, relevance for equity pricing, as indicated by the market reaction to cash flow or forecast error reactions. The final sample comprised 2,138 observations between 2001 and 2016 and several regression models are estimated to determine the relative performance and market reaction. Findings Analysts’ consensus cash flow forecasts demonstrate poor predictive performance relative to earnings forecasts. Cash flow forecasts are typically naïve extensions of earnings forecasts. Furthermore, cash flow forecasts appear to be of minimal use for equity market participants in complementing earnings forecasts’ role in informing firms’ equity pricing. Practical implications While analysts’ earnings forecasts are useful for making predictions, the role of analysts’ cash flow forecasts in capital market functional efficiency appears quite limited. Originality/value This study is one of few that examines comparative usefulness of analysts’ earnings and cash flow forecasts and their predictive power using the Australian setting. Additionally, it enriches the sparse international literature on such forecasts.

Analyst reaction to non-articulation between the balance sheet and the statement of cash flows

2019 ◽  
Vol 21 (1) ◽  
pp. 163-184
Author(s):  
Peter Frischmann ◽  
K.C. Lin ◽  
Dilin Wang
Keyword(s):  
Cash Flow ◽  
Balance Sheet ◽  
Cash Flows ◽  
Negative Influence ◽  
Financial Statement ◽  
Earnings Forecast ◽  
Content Type ◽  
Cash Flow Forecasts ◽  
Analyst Earnings ◽  
Statement Of Cash Flows

Purpose The purpose of this paper is to investigate the effect of non-articulation on analyst earnings forecast quality. The authors look for evidence on the relationship between non-articulation and analyst earnings forecast properties: forecast inaccuracy, forecast dispersion and forecast bias. Design/methodology/approach The empirical tests are primarily based analyst earnings and cash flow forecasts covered by Institutional Broker Estimate System and financial statement information obtained from Compustat North America database. Findings The authors hypothesize and find that non-articulation is positively related to analyst forecast dispersion, forecast accuracy and forecast bias for one-year ahead of earnings. The effects of non-articulation on analyst earnings forecast inaccuracy and bias are neutralized when the analyst issues a cash flow forecast and when such forecast provides accurate information regarding the forecasted firm’s operating cash flow. On the other hand, cash flow forecast issuance alone does not mitigate the negative influence of non-articulation. Research limitations/implications The sample selection procedure limits the generalizability of the findings. Practical implications The findings confirm CFA Institute and prior research asserting that non-articulation deteriorates the quality of earnings forecasts by financial statement users (more specifically, the financial analysts). The authors add to the literature by documenting that accurate cash flow forecasts help analysts mitigate the negative influence of non-articulation on earnings forecast quality. Originality/value It remains an empirical question whether non-articulation between the balance sheet and the statement of cash flows has an effect on financial statement users’ ability to assimilate financial information. The paper highlights the detrimental effect of non-articulation by documenting the relationship between the non-articulation and the quality of earnings expectation.

scholarly journals Correcting for Hubris in Project Appraisal

2012 ◽  
Vol 2012 ◽  
pp. 1-4
Author(s):  
Jacques A. Schnabel
Keyword(s):  
Adverse Events ◽  
Cash Flow ◽  
Behavioral Finance ◽  
Deleterious Effect ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Project Appraisal ◽  
Hurdle Rate ◽  
Cash Flow Forecasts

Behavioral finance research stresses the prevalence of overconfidence in capital budgeting practices. To remedy this shortcoming, specifically the upward bias in cash flow forecasts, the extant literature emphasizes the reduction of such forecasts. This paper considers the conditions under which a different adjustment is warranted, namely, an upward correction in the hurdle rate employed to evaluate the project. It is argued here that if adverse events can have a long-term, versus a merely transitory, deleterious effect on the project's cash flows, the second adjustment is appropriate.

The Quality of Analysts' Cash Flow Forecasts

2009 ◽  
Vol 84 (6) ◽  
pp. 1877-1911 ◽  
Author(s):  
Dan Givoly ◽  
Carla Hayn ◽  
Reuven Lehavy
Keyword(s):  
Earnings Management ◽  
Stock Returns ◽  
Cash Flow ◽  
Earnings Forecasts ◽  
Cash Flows ◽  
Limited Information ◽  
Forecast Period ◽  
The Difference ◽  
Cash Flow Forecasts

ABSTRACT: This study examines properties of analysts' cash flow forecasts and compares them to those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are less accurate than analysts' earnings forecasts and improve at a slower rate during the forecast period. Further, cash flow forecasts appear to be a nai¨ve extension of analysts' earnings forecasts, thus providing limited information on expected changes in working capital. We also find that analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock returns. Finally, estimating expected accruals as the difference between analysts' earnings forecasts and their cash flow forecasts does not result in a better detection of earnings management than achieved by commonly used accrual models.

Downsides and DCF: Valuing Biased Cash Flow Forecasts

CFA Digest ◽  
2011 ◽  
Vol 41 (4) ◽  
pp. 96-98
Author(s):  
William Ang
Keyword(s):  
Cash Flow ◽  
Cash Flow Forecasts
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