Earnings forecasting research: its implications for capital markets research

Brown, Lawrence D.

doi:10.1016/0169-2070(93)90023-g

Cited by 464 publications

(239 citation statements)

References 118 publications

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“…In the US market, Asquith et al (2005) report that 6 For a comprehensive overview of EPS forecast accuracy studies, see Schipper (1991) and Brown (1993) The international evidence with respect to target prices is equally limited. In an Italian study, Bonini et al (2010) report that target price inaccuracy is larger for TPs predicting strong price increases, for larger firms, for loss-making ones, and for stocks with better analyst coverage and stronger momentum.…”

Section: Literature Reviewmentioning

confidence: 99%

Target Price Accuracy: International Evidence

Bilinski

Lyssimachou

Walker

2012

The Accounting Review

117

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This paper shows that analysts exhibit differential and persistent ability to issue accurate target prices (TPs), and that institutional and regulatory differences across countries affect TP accuracy. Using a sample of 16 countries, we find that better past TP forecasters, analysts with higher forecasting experience, following more firms, country-specialized, and employed by a large broker issue more accurate TPs. Further, the country's institutional and regulatory factors, such as the accounting disclosure quality, the origin of the legal system, cultural traits, and IFRS regulation explain cross-country differences in TP forecast accuracy.

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Section: Literature Reviewmentioning

confidence: 99%

Target Price Accuracy: International Evidence

Bilinski

Lyssimachou

Walker

2012

The Accounting Review

117

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“…While there are strong intuition and theory that stock returns follow a random walk, income is known to mean-revert due to transitory components in accounting income, and economic factors such as entry and exit (e.g., Brooks and Buckmaster, 1976;Brown, 1993). Because of this mean reversion, the random-walk (RW) model predicts future income with error and bias (Barber and Lyon, 1996).…”

mentioning

confidence: 99%

Have the tax benefits of debt been overestimated?

Blouin

Core

Guay

2010

Journal of Financial Economics

234

125

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We re-examine the claim that many corporations are underleveraged in that they fail to take full advantage of debt tax shields. We show prior results suggesting underleverage stems from biased estimates of tax benefits from interest deductions. We develop improved estimates of marginal tax rates using a non-parametric procedure that produces more accurate estimates of the distribution of future taxable income. We show that additional debt would provide firms with much smaller tax benefits than previously thought, and when expected distress costs and difficult-to-measure non-debt tax shields are also considered, it appears plausible that most firms have tax-efficient capital structures. AbstractWe re-examine the claim that many corporations are underleveraged in that they fail to take full advantage of debt tax shields. We show prior results suggesting underleverage stems from biased estimates of tax benefits from interest deductions. We develop improved estimates of marginal tax rates using a non-parametric procedure that produces more accurate estimates of the distribution of future taxable income. We show that additional debt would provide firms with much smaller tax benefits than previously thought, and when expected distress costs and difficult-to-measure non-debt tax shields are also considered, it appears plausible that most firms have tax-efficient capital structures.

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“…Analysts also produce biased recommendations and target prices on average (Bradshaw, 2011;Mokoaleli-Mokoteli, Taffler and Agarwal, 2009), but despite this, professional investors still rely on analysts' outputs (Barker, 1998;Clement and Tse, 2003) and are well aware of potential biases (Clatworthy, 2005). Brown (1993), Ramnath, Rock and Shane (2008) and Bradshaw (2011) provide comprehensive reviews of the sell-side analysts' literature.…”

Section: Information Sources Used By Professional Equity Investorsmentioning

confidence: 99%

Who Uses Financial Reports and for What Purpose? Evidence from Capital Providers

Cascino

Clatworthy

Osma

et al. 2014

Accounting in Europe

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We review the academic literature on the use of financial reporting information by capital providers. We classify our findings by investor type and by information objective. While most capital providers use accounting information, our survey indicates that they do so in a variety of ways with financial reporting information competing with other sources of information. We also find that information intermediaries are influential in both credit and equity markets, making the identification of a typical target 'user' inherently difficult. Our main findings question the underlying objective of the Conceptual Framework to guide the development of standards for general-purpose financial statements to provide a typical knowledgeable investor with a true and fair view about the reporting entity. Finally, we identify gaps in the literature and suggest areas where future research can help inform important academic and policy debates.

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Earnings forecasting research: its implications for capital markets research

Cited by 464 publications

References 118 publications

Target Price Accuracy: International Evidence

Target Price Accuracy: International Evidence

Have the tax benefits of debt been overestimated?

Who Uses Financial Reports and for What Purpose? Evidence from Capital Providers

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