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The Effect Of Accruals On Security Analysts’ Target Price Forecast Performance

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  • Cho JOONG-SEOK

Abstract

Using a sample of U.S. security analysts’ target price forecasts issued over the period 2000-2010, we examine how accounting accruals and accrual components affect security analysts’ target price forecast performance. In this study, we find that analysts’ target price forecasts for firms with higher accruals level are less accurate and have lower possibilities of being met or beat at some time during or at the end of the forecast horizon. With the deposition of accruals into short- and long-term accruals, our results show that both types of accruals lower the possibility of achieving analysts’ target prices at the end of the forecast horizon. However, only short-term accruals affect negatively the possibility of achieving analysts’ target prices at some time during the forecast horizon. These results suggest that the analysts fail to incorporate correctly the implications of the accrual information.

Suggested Citation

  • Cho JOONG-SEOK, 2012. "The Effect Of Accruals On Security Analysts’ Target Price Forecast Performance," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 7(3(21)/ Fa), pages 228-234.
  • Handle: RePEc:ush:jaessh:v:7:y:2012:i:3(21)_fall2012:p:228
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    References listed on IDEAS

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    1. Asquith, Paul & Mikhail, Michael B. & Au, Andrea S., 2005. "Information content of equity analyst reports," Journal of Financial Economics, Elsevier, vol. 75(2), pages 245-282, February.
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    More about this item

    Keywords

    analysts; target price; accounting accruals;

    JEL classification:

    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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