Mandatory IFRS adoption and analyst forecast accuracy: the role of financial statement-based forecasts and analyst characteristics

Matthias Demmer, Paul Pronobis, Teri Lombardi Yohn

Review of Accounting Studies · 2019 · Volume 24 · Issue 3

Abstract

This study examines whether the improvement in analyst forecast accuracy around mandatory IFRS adoption is associated with the improvement in the accuracy of financial statement-based forecasts. We find significant out-of-sample improvement in financial statement-based forecast accuracy around mandatory IFRS adoption and significant improvement in analyst forecast accuracy only in countries that made concurrent improvements to financial reporting enforcement. We show that the improvement in analyst forecast accuracy is associated with the improvement in financial statement-based forecast accuracy around IFRS adoption. We also show that analyst forecasts, particularly for firms whose analysts forecast under favorable conditions (i.e., analysts who are less busy with more experience and resources), have a greater association with financial statement-based forecasts, after mandatory IFRS adoption in countries with concurrent changes in enforcement.

Keywords

Financial statement analysis, Mandatory IFRS adoption, Analyst forecasts, Profitability forecasts

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