Fair value accounting and analyst forecast accuracy

Ayres, Douglas; Huang, Xuerong; Myring, Mark

doi:10.1016/j.adiac.2016.12.004

Cited by 31 publications

(48 citation statements)

References 59 publications

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“…The results provided in the Table 4 also show positive relationship between earnings management and current forecast accuracy. This is in line with a more recent findings by Ayres et al (2017), which show that the use of different accounting policy is not captured by analysts in forming their forecasts. Research by Kim et al (2017) as well as Wang et al (2015) also concludes that analysts somehow are limited in their ability to detect earnings management and rely on reported earnings and information provided by management.…”

Section: Hypotheses Testingsupporting

confidence: 91%

“…Kim et al (2015) provide evidence that analysts rely on information provided by companies in forming their forecasts. Ayres et al (2017) show that the use of alternative accounting method does affect the accuracy of analyst forecasts. These findings lead us to conclude that analysts' ability to detect earnings management is somehow limited.…”

Section: The Influence Of Earnings Management On Analyst Forecast Accmentioning

confidence: 97%

“…Prior studies on meeting or beating analyst forecast in which managers manage earnings to meet analysts forecast mainly treat the two variables as exogenous (Ayres et al 2017;Salerno 2014;Beyer 2008;Beyer et al 2010). In other words, in investigating whether earnings management is related to analyst forecast, previous studies ignore the possibility that forecast may also be influenced by earnings management.…”

Section: Literature Review and Hypotheses Development Earnings Managementioning

confidence: 99%

“…The choice of accounting method may also affect earnings reported by the company. Fair value accounting for example may affect earnings number as some of the items such as profit or losses from the valuation will go through income statement (Ayres, Huang & Myring 2017). Prior studies therefore provide evidence that analysts partly rely on financial information including earnings reported by companies in forming their forecasts.…”

Section: Introductionmentioning

confidence: 99%

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Analyst Forecast Accuracy and Earnings Management

Embong

Hosseini²

2018

AJAG

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This paper investigates the reciprocal or endogenous relationship between earnings management and analyst forecast accuracy. Earnings number is one of the most referred information especially in relation to investment decision-making. Financial analysts use earnings number and its trend in coming up with their forecast. The quality of earnings reported hence may affect the accuracy of forecast made by analysts. Quality of reported earnings is often indicated by earnings management. One of the motivations to manage earnings is to meet or beat analyst forecasts. If analysts failed to account for earnings management, it is possible that earnings manipulation in the previous year may mislead analysts and affect forecast accuracy for current and/or future years. Thus, relationship between earnings management and forecast accuracy could be endogenous or reciprocal, where managers react upon analysts' forecasts and analysts use reported earnings to make forecast. Previous research on this area assume earnings management and forecast accuracy as exogenous variables. This study on the other hand incorporates the reciprocal relationship between analyst forecast accuracy and earnings management in examining whether analysts can detect earnings management. The relationship between earnings management and analyst forecast accuracy of 110 firms listed on Main board of Bursa Malaysia from 2007 to 2012 is analyzed using dynamic panel system Generalized Method of Moments (GMM) estimator. The year 2007 to 2012 is chosen because this represents the period of convergence from MASB to MFRS. Result indicates that meeting or beating the forecast is one of the incentives for earnings management although not a strong incentive. On the other hand, earnings management significantly influence forecast accuracy, indicating that somehow, analysts trust the reported earnings. This study adds to the literature by addressing the possible endogenous and dynamic relationship between earnings management and analyst forecast accuracy.

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Section: Hypotheses Testingsupporting

confidence: 91%

Section: The Influence Of Earnings Management On Analyst Forecast Accmentioning

confidence: 97%

Section: Literature Review and Hypotheses Development Earnings Managementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Analyst Forecast Accuracy and Earnings Management

Embong

Hosseini²

2018

AJAG

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“…Ayres et.al. [8] examined the effect of fair value accounting on the behaviour of analysts and found a positive relationship between fair value asset holdings and forecast accuracy. They challenged the notion that fair value information is less reliable and documented that analyst bias can be reduced by fair value measurements.However, critics of fair value accounting concerned that fair value may be less reliable than historical cost.…”

Section: Fair Value Accountingmentioning

confidence: 99%

An Empirical Study on Value Relevance of Fair Value: Based on the Data of Financial Industry and Manufacturing Industry in China

Wu¹

2017

Preprint

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Economic development and advancements in information technology contributed to the shift on accounting objective from commission responsibility view to decision-making useful view. The decision-making useful view claims that the accounting measurement methods should be changed to improve the usefulness of accounting information, to enable information users to make correct decisions. In addition, the development of financial instruments leads to the birth of fair value accounting. In recent years, fair value has been one of the most important measurement methods in the International Accounting Standard and US Generally Accepted Accounting Principles. However, China has been quite cautious when it comes to applying fair value full time, especially after the global financial crisis happened in 2008, wherein fair value accounting was exposed to strong suspicion. Hence, studying the value relevance of fair value is of great significance to exploring the accounting profession and reforming accounting standards. This paper attempts to investigate the value-relevance of fair value based on the data of listed financial companies and manufacturing companies in China. The results indicate that the fair value information in the financial industry has a strong explanatory influence to corporate share price. In contrast, the fair value information shows limited relevance in the manufacturing industry. Finally, consulting with the results of normative analysis and empirical study, this paper suggests several rational advices for the application of fair value in China.

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Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator

Thesing

Velte

2021

J Bus Econ

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This structured literature review of 48 archival-based studies investigates the influence of fair value measurements on earnings quality and stresses the moderating impact of corporate governance. We focus on accounting-based earnings quality measures that have several advantages for investigating agency-related earnings management behavior compared to market-based measures (e.g. value relevance studies). Fair value measurements are not restricted to specific industries, periods, circumstances, or items in our sample. Based on the applied earnings quality measure, the reviewed articles are structured into five categories: (1) earnings persistence and predictive ability, (2) discretionary accruals, (3) target beating and properties of analysts’ forecasts, (4) earnings variability, and (5) other earnings quality measures. We indicate three key findings: first, fair value measurements show mixed earnings quality; second, lower-level fair value measurements decrease earnings quality; and third, corporate governance measures enhance earnings quality. After that, we deduce six research questions for future research. We show possible extensions to previous research designs in methodology and settings. Future research should also focus on corporate governance variables to a greater extent, especially compensation and board structures. Thereby, we suggest extending the neoclassical view with behavioral aspects.

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Fair value accounting and analyst forecast accuracy

Cited by 31 publications

References 59 publications

Analyst Forecast Accuracy and Earnings Management

Analyst Forecast Accuracy and Earnings Management

An Empirical Study on Value Relevance of Fair Value: Based on the Data of Financial Industry and Manufacturing Industry in China

Do fair value measurements affect accounting-based earnings quality? A literature review with a focus on corporate governance as moderator

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