Are analysts’ earnings forecasts more accurate when accompanied by cash flow forecasts?

Andrew C. Call, Shuping Chen, Yen H. Tong

Review of Accounting Studies · 2009 · Volume 14 · Issue 2

Abstract

We examine whether analysts’ earnings forecasts are more accurate when they also issue cash flow forecasts. We find that (i) analysts’ earnings forecasts issued together with cash flow forecasts are more accurate than those not accompanied by cash flow forecasts, and (ii) analysts’ earnings forecasts reflect a better understanding of the implications of current earnings for future earnings when they are accompanied by cash flow forecasts. These results are consistent with analysts adopting a more structured and disciplined approach to forecasting earnings when they also issue cash flow forecasts. Finally, we find that more accurate cash flow forecasts decrease the likelihood of analysts being fired, suggesting that cash flow forecast accuracy is relevant to analysts’ career outcomes.

Keywords

Analysts, Earnings forecasts, Cash flow forecasts, Forecast accuracy, Analyst turnover

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