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The Relevance of Analysts’ Earnings Forecasts in Japan

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  • Vicentiu Covrig
  • Buen Sin Low

Abstract

This study examines the role of financial analysts in equity valuation in Japan by comparing the relevance of financial analysts’ earnings forecasts, over financial statement information, to investors’ decisions. We find that the value‐relevance of a set of accounting variables is very modest, but the incremental contribution of analysts’ forecasts is very significant. This is in line with the expectation that the skill and expertise of analysts are more valuable in markets with poor financial disclosure, such as Japan. We also find that the importance of the financial statements increases over time while the importance of the analysts’ forecasts does not change. We also provide evidence of the effect of Japanese corporate groupings, keiretsu, on the informativeness of accounting signals and earnings forecasts. The results show that the contribution of accounting variables to valuation is lower for keiretsu firms, which supports the exclusionary hypothesis that companies which are a part of keiretsu, disclose less information than do non‐keiretsu companies. The analysts’ forecasts are equally important for investors in both types of firms.

Suggested Citation

  • Vicentiu Covrig & Buen Sin Low, 2005. "The Relevance of Analysts’ Earnings Forecasts in Japan," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(7‐8), pages 1437-1463, September.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:7-8:p:1437-1463
    DOI: 10.1111/j.0306-686X.2005.00635.x
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    2. Young‐Soo Choi & Svetlana Mira & Nicholas Taylor, 2022. "Local versus foreign analysts' forecast accuracy: does herding matter?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(S1), pages 1143-1188, April.
    3. Weetman, Pauline, 2006. "Discovering the ‘international’ in accounting and finance," The British Accounting Review, Elsevier, vol. 38(4), pages 351-370.

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