Alternative evidence on financial analysts' use of financial statement information
AbstractPurpose – Financial analysts are frequently viewed as information intermediaries who process and interpret firms' financial reports for other market participants. Much recent research, however, has cast doubts on analysts' ability to fully utilize the information in firms' financial reports. Using an alternative approach, this study aims to provide evidence on how sophisticated analysts are at using information in firms' financial reports. Design/methodology/approach – The paper estimates different measures of firms' operational efficiency, all of which are derived from financial statement data, and compares the strength of the association between these measures and analysts' absolute forecast errors. It then compares a sophisticated frontier-based measure of firms' operational efficiency that evaluates firms' performance relative to their competitors with three more traditional efficiency measures; specifically the return on asset (ROA) ratio, industry-adjusted ROA, and the return on equity ratio. Findings – The results indicate that the more sophisticated frontier-based measure is more strongly negatively associated with analysts' absolute forecast errors than the other three measures. The results thus suggest that analysts are capable of undertaking a sophisticated analysis of the information in firms' financial reports, at least as it pertains to operational efficiency. Originality/value – To the extent that analysts serve as a key group of users of financial information, these results are likely to be of interest to accounting policy makers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Review of Accounting and Finance.
Volume (Year): 6 (2007)
Issue (Month): 4 (November)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister).
If references are entirely missing, you can add them using this form.