A Multivariate Analysis of Annual Earnings Forecasts Generated from Quarterly Forecasts of Financial Analysts and Univariate Time-Series Models

Collins, William A.; Hopwood, William S.

doi:10.2307/2490585

Cited by 135 publications

(62 citation statements)

References 17 publications

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“…A negative association between forecast horizon and forecast accuracy is reported in earlier U.S. studies (Collins & Hopwood, 1980;Brown, Foster, & Noreen, 1985). As earnings forecast is an inherently uncertain process, the longer the forecast horizon the greater the possibility that unexpected events may occur.…”

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The impact of the CSRC Regulation No. 12-1996 on the credibility of Chinese IPO earnings forecasts

Sun

Liu

2009

Global Finance Journal

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No. 12-1996). The Regulation No. 12-1996 (thereafter "the Regulation") imposes penalties on firms whose IPO earnings forecasts are significantly overestimated in their IPO prospectuses.Specifically, the Regulation requires that IPO firms and their auditors must explain and apologize to the public in a CSRC designated newspaper if predicted earnings are overestimated by 10 -20% compared to actual earnings. IPO firms will be penalized if earnings forecasts are overestimated by more than 20% and the overestimation is deemed to be a fraudulent activity. Auditors will also be penalized if they issue an inappropriate audit opinion on a client company's IPO earnings forecasts. The Regulation also prohibits IPO firms from using earnings forecasts as a basis for setting issuance price.Although the Regulation was promulgated to improve the reliability of earnings forecasts in Chinese IPO prospectuses, it remains an empirical question because the legal enforcement infrastructure is weak in China. Moreover, Chinese IPO firms are closely connected with the government, which may provide opportunities for them to override the Regulation. Hence, whether the Regulation can enhance the reliability of earnings forecasts is an empirical question. This study examines whether the Regulation has achieved its initial 2 IPO earnings forecasts from some Commonwealth countries seem less accurate than Chinese IPO earnings forecasts. For example, the mean absolute forecast error is 289% for the Australian forecasts (Hartnett, 1993), 100% for the New Zealand forecasts (Mak, 1989), and 88% for the Canadian forecasts (Pedwell, Warsame, & Neu, 1994).3 objective. We find that the Regulation has been efficacious in reducing the overestimation of IPO earnings forecasts after it was promulgated on December 26, 1996. We also document a significant improvement in earnings forecast accuracy resulting from the promulgation of the Regulation.This study contributes to the literature in the following ways. First, to the best of our knowledge, this is the first study to investigate whether a securities regulation in an emerging market can enhance the reliability of corporate financial disclosure. Since there is rare research into the effects of securities regulations on corporate disclosure, the promulgation of the CSRC Regulation No. 12-1996 provides us an opportunity to enrich this research topic.Second, we document evidence on the efficacy of the CSRC Regulation No. 12-1996. Our findings may provide implications for future regulation promulgation to the CSRC and other securities regulators of emerging markets. Third, this study adds to prior research on the economic determinants of forecast accuracy. Our study suggests some ex ante criteria for evaluating Chinese earnings forecast accuracy.The remainder of the paper is organized as follows. Section 2 introduces institutional background. The third section develops hypotheses. Section 4 discusses research design.

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The impact of the CSRC Regulation No. 12-1996 on the credibility of Chinese IPO earnings forecasts

Sun

Liu

2009

Global Finance Journal

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“…Given that strikes are significant economic events, it is conceivable that they affect the forecasting and/or the information content of accounting earnings numbers. Indeed, Collins and Hopwood (1980) and Beaver (1981, p. 105), respectively, have asserted that strikes are "atypical" events (i.e., potential interventions in the earnings process) that can affect the forecasting and information content of accounting earnings numbers. However, neither Collins and Hopwood (1980) nor Beaver (1981) empirically examined these hypotheses.…”

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The effect of labor strikes on security analysts' forecast superiority and on the association between risk‐adjusted stock returns and unexpected earnings*

Brown

Zmijewski

1987

Contemporary Accting Res

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Abstract. This paper empirically examines whether labor strikes affect the forecasting and infonnation content of quarterly earnings numbers. We address two issues regarding financial analyst forecast (FAF) superiority: whether FAF superiority increases when a strike occurs and if so, whether the increase in FAF superiority is sustained immediately after the strike ends. We also examine two issues regarding infonnation content: whether strikes affect the coefficient mapping unexpected earnings into stock prices and whether strikes affect the variance of stock price changes. We suggest that strikes affect both the forecasting and information content of quarterly earnings numbers.Resume. Cet article examine de fagon empidque si les greves des travailleurs influencent la pr6vision et le contenu informatif des resultats trimestriels. Nous abordons deux questions relatives k la superiorite des provisions d'analystes financiers (PAF): a savoir si la sup^dodtd des PAF s'accroit lorsqu'une greve se produit et, dans l'affirmative, si I'accroissement de cette superiorite se maintient immOdiatement apres la fin de la gr^ve. Nous ^tudions egalement deux questions relatives au contenu informatif: a savoir si les graves influencent le coefficient incorporant l'impact des b6nefices imprevus sur le cours des actions et si les greves affectent la vadance des fluctuations du cours des actions. Les greves affecteraient done a la fois la prevision et le contenu informatif des resultats tdmestdels.

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“…Criterion (4) Criterion (6) in Table . The year-specific components of forecast errors in this sample are constructed using the following model:…”

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Individual Forecasting Ability

O’Brien

1987

Managerial Finance

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Are some analysts ‘superstars’? Financial press coverage of analysts' performance suggests that there are superior financial analysts. One example of this coverage is the Institutional Investor ‘All American Research Team’, based on surveys of money managers, who nominate and rank analysts. In this paper, I explore the question of individual superiority by examining one aspect of analysts' services: earnings forecasting. Forecasts of future earnings are of interest to investors, as inputs to investment decisions, and also to researchers, as data on earnings expectations.

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A Multivariate Analysis of Annual Earnings Forecasts Generated from Quarterly Forecasts of Financial Analysts and Univariate Time-Series Models

Cited by 135 publications

References 17 publications

The impact of the CSRC Regulation No. 12-1996 on the credibility of Chinese IPO earnings forecasts

The impact of the CSRC Regulation No. 12-1996 on the credibility of Chinese IPO earnings forecasts

The effect of labor strikes on security analysts' forecast superiority and on the association between risk‐adjusted stock returns and unexpected earnings*

Individual Forecasting Ability

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