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The joint information role of analysts’ cash flow and earnings forecasts
Author(s) -
Dhole Sandip,
Gul Ferdinand A.,
Mishra Sagarika,
Pal Ananda M.
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12581
Subject(s) - cash flow , earnings , earnings surprise , operating cash flow , accrual , economics , terminal value , econometrics , post earnings announcement drift , cash flow forecasting , earnings response coefficient , business , monetary economics , financial economics , accounting
We study whether the relative magnitudes of analysts’ cash flow and earnings forecasts convey information about the persistence and value relevance of reported earnings. We find that reported earnings are likely to be more (less) persistent and value relevant when analysts forecast relatively moderate (extreme) levels of operating cash flows, relative to earnings. We also find that the market’s response to a given earnings surprise is the strongest for moderate levels of cash flow forecasts relative to earnings. The joint information role of analysts’ cash flow and earnings forecasts persists even after controlling for the absolute accruals in the model.