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The Impact of Segment Definition on the Accuracy of Analysts' Earnings Forecasts

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  • Simon Hussain

Abstract

This study investigates forecast error determinants for a set of forecasts of annual corporate earnings, generated by UK analysts 22 months prior to the announcement dates. This study is particularly concerned with the impact of segmental data on forecast errors; the hypothesis under test is whether finer segment definitions provide market participants with improved insight. If segments are too broad or vague (e.g. rest of the world) it is unlikely that data for such segments will provide analysts with any additional information regarding the current corporate position or future prospects. The results of this study provide evidence of predictive gains to both line- of-business data and geographic data, although these gains appear to be concentrated within a sub-sample of firms for which analysts appear to have specific difficulty in forecasting earnings, i.e. those experiencing negative changes in earnings. The results also indicate that forecast errors are: negatively related to firm size; positively related to the magnitude of the change in earnings which the analyst must predict; and not significantly affected by the number of reported segments.

Suggested Citation

  • Simon Hussain, 1997. "The Impact of Segment Definition on the Accuracy of Analysts' Earnings Forecasts," Accounting and Business Research, Taylor & Francis Journals, vol. 27(2), pages 145-156.
    • Handle: RePEc:taf:acctbr:v:27:y:1997:i:2:p:145-156
    DOI: 10.1080/00014788.1997.9729540
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    References listed on IDEAS

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    1. Collins, Daniel W. & Kothari, S. P. & Rayburn, Judy Dawson, 1987. "Firm size and the information content of prices with respect to earnings," Journal of Accounting and Economics, Elsevier, vol. 9(2), pages 111-138, July.
    2. Bhushan, Ravi, 1989. "Firm characteristics and analyst following," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 255-274, July.
    3. Balakrishnan, R & Harris, Ts & Sen, Pk, 1990. "The Predictive Ability Of Geographic Segment Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 28(2), pages 305-325.
    4. Bhushan, Ravi, 1989. "Collection of information about publicly traded firms : Theory and evidence," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 183-206, July.
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    Cited by:

    1. Kou, Wenchao & Hussain, Simon, 2007. "Predictive gains to segmental disclosure matrices, geographic information and industry sector comparability," The British Accounting Review, Elsevier, vol. 39(3), pages 183-195.
    2. Ahmed Aboud & Clare Roberts & Khaled Hussainey, 2019. "The impact of IFRS 8 on segment information quality in the European Union: a multi-dimensional analysis," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 16(2), pages 100-115, July.
    3. Ahmed Saleh & Ahmed Aboud & Yasser Eliwa, 2023. "IFRS 8 and the cost of capital in Europe," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3198-3231, July.
    4. Aboud, Ahmed & Roberts, Clare & Mansour Zalata, Alaa, 2018. "The impact of IFRS 8 on financial analysts’ earnings forecast errors: EU evidence," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 33(C), pages 2-17.
    5. Aboud, Ahmed & Roberts, Clare, 2018. "Managers’ segment disclosure choices under IFRS 8: EU evidence," Accounting forum, Elsevier, vol. 42(4), pages 293-308.
    6. Aboud, Ahmed, 2023. "Segmental reporting, accounting enforcement, and analyst forecast dispersion in the European Union," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).
    7. Al-Aamri, Ibrahim & Hussain, Simon & Su, Chen & Hsu, Hwa-Hsien, 2022. "The importance of brokerage house size in determining the utility of IFRS8 segment data to financial analysts," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    8. Kang, Helen & Gray, Sidney J., 2019. "Country-specific risks and geographic disclosure aggregation: Voluntary disclosure behaviour by British multinationals," The British Accounting Review, Elsevier, vol. 51(3), pages 259-276.

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