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Does firm reporting quality and analyst forecasting skill influence the analyst choice to issue revenue forecasts?

Research output: Working paper

Publication date2012
Place of PublicationLancaster
PublisherLancaster University
Number of pages49
<mark>Original language</mark>English


This study documents that analysts are more likely to issue revenue forecasts to complement earnings-per-share estimates (EPS) when the quality of firm financial reporting is low. This is because compared to EPS forecasts accuracy, revenue forecast accuracy is less adversely affected by poor reporting quality, and as a result, investors rely more on revenue than EPS estimates in their investment decisions when the reporting quality is low. The result is robust to using five proxies for the quality of firm financial reporting: the variation in discretionary accruals, the absolute level of discretionary accruals, earnings persistence, absolute total accruals, and earnings volatility. Further, we document that better earnings forecasters are more likely to issue revenue estimates. This is because only better quality analysts would want their forecasts to be subject to higher market scrutiny, and because a combination of accurate revenue and EPS forecasts is a stronger signal of the analyst forecasting skill compared to an accurate stand-alone EPS estimate only.