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R&D Expenditures and Analysts’ Earnings Forecasts

Author

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  • Taoufik Elkemali

    (Accounting Department, College of Business Administration, King Faisal University, Al-Ahsa 31982, Saudi Arabia
    Finance and Accounting Department, Faculty of Economics and Management of Mahdia, University of Monastir, Monastir 5000, Tunisia
    LIGUE Laboratory LR99ES24, ISCAE, University of Manouba, Cité Nasr 2010, Tunisia)

Abstract

Previous research provides conflicting results regarding how R&D expenditures impact market value. Given that financial analysts are the primary intermediaries between companies and investors, our study focused on the impact of R&D-related uncertainty, growth, and information asymmetry associated on analysts’ earnings forecasts. Based on 19,834 firm-year observations in the European market between 2005 and 2020, our results show that R&D activities lead to higher absolute forecast error and negative forecast error, indicating higher forecast inaccuracy with an optimistic bias. Additionally, these investments contribute to higher forecast dispersion, indicating disagreement among financial analysts. The comparison between 17 industries revealed that these effects are more pronounced in R&D-intensive industries than in non-R&D industries, uncovering the varied relationship between R&D investments and analyst forecasts across sectors.

Suggested Citation

  • Taoufik Elkemali, 2024. "R&D Expenditures and Analysts’ Earnings Forecasts," Forecasting, MDPI, vol. 6(3), pages 1-17, July.
    • Handle: RePEc:gam:jforec:v:6:y:2024:i:3:p:29-549:d:1430640
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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