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Analyst Revenue Forecast Reporting and the Quality of Revenues and Expenses

Bilinski, P. ORCID: 0000-0002-0499-6429 and Michael, E. (2018). Analyst Revenue Forecast Reporting and the Quality of Revenues and Expenses. Journal of Business Finance and Accounting, doi: 10.1111/jbfa.12355

Abstract

We decompose earnings quality into revenue and expense quality and examine their associations with analyst propensity to supplement their earnings forecasts with revenue forecasts. Analysts report more revenue forecasts to I/B/E/S when expense quality is low to compensate for the low accuracy of their earnings estimates, which has a positive association with expense quality. Expense quality is unassociated with revenue forecast accuracy, thus revenue forecasts become increasingly useful for valuing firms when expense quality is low. Analysts report fewer revenue forecasts when revenue quality is low because both earnings and revenue forecast accuracy decline as revenue quality deteriorates. To control for endogeneity, we use firm-fixed effects to control for unobserved time-invariant heterogeneity across firms, instrumental variables regressions and regression in changes.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Bilinski, P. & Michael, E. (2018). Analyst Revenue Forecast Reporting and the Quality of Revenues and Expenses. Journal of Business Finance and Accounting, which is published in final form at https://doi.org/10.1111/jbfa.12355. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Publisher Keywords: joint earnings and revenue forecast issues, quality of earnings components, earnings and revenue forecast accuracy, price reaction
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/20235
[img] Text - Accepted Version
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