IDEAS home Printed from https://ideas.repec.org/a/taf/euract/v26y2017i2p193-214.html
   My bibliography  Save this article

Do Analysts Strategically Employ Cash Flow Forecast Revisions to Offset Negative Earnings Forecast Revisions?

Author

Listed:
  • Choong-Yuel Yoo
  • Jinhan Pae

Abstract

We investigate whether analysts use cash flow forecasts to reduce the impact of earnings forecast revisions (EFRs) on market participants. In particular, we focus on conflict between an analyst's concurrent cash flow and earnings forecast revisions. We hypothesize and find that analysts are more likely to issue a positive cash flow forecast revision when they issue a negative earnings forecast revision concurrently, but not the opposite, particularly for Fortune 500 firms. Furthermore, our supplementary analyses suggest that (1) some analysts optimistically bias cash flow forecasts when they issue negative earnings forecast revisions; (2) the market pays less attention to the historical accuracy of analyst cash flow forecasts, so analysts have some latitude to present their cash flow forecasts in an optimistic way; and (3) the market reacts mainly to the direction, not the magnitude, of cash flow forecast revisions. Overall, these findings suggest that analysts may strategically use cash flow forecasts in conjunction with earnings forecasts to maintain good management relationships.

Suggested Citation

  • Choong-Yuel Yoo & Jinhan Pae, 2017. "Do Analysts Strategically Employ Cash Flow Forecast Revisions to Offset Negative Earnings Forecast Revisions?," European Accounting Review, Taylor & Francis Journals, vol. 26(2), pages 193-214, April.
    • Handle: RePEc:taf:euract:v:26:y:2017:i:2:p:193-214
    DOI: 10.1080/09638180.2015.1123102
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/09638180.2015.1123102
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/09638180.2015.1123102?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Xia & Gupta, Jairaj & Bu, Ziwen & Kannothra, Chacko George, 2023. "Effect of cash flow risk on corporate failures, and the moderating role of earnings management and abnormal compensation," International Review of Financial Analysis, Elsevier, vol. 89(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:euract:v:26:y:2017:i:2:p:193-214. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/REAR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.