Do Analyst Forecasts Help Investors Assess the Valuation Implications of Accruals? International Evidence

• In Event: Financial Reporting--International Evidence

Abstract

This paper examines whether investors make use of analysts’ earnings forecasts to understand the valuation implications of accruals in the similar fashion across countries. Analysts may better facilitate market pricing of earnings components in countries with better financial accounting systems because investors may more rely on analysts’ earnings forecasts when assessing accruals. However, investors may respond to analysts’ earnings forecasts more strongly in code law countries because of lack of high-quality firm-provided disclosures. My results support the conjecture that market reliance on analysts’ earnings forecasts in accrual valuation is larger in common law countries. My results also suggest that the common-law and code-law difference in terms of the market demand of analyst service diminishes with accounting convergence resulting from implementing IFRS.

Author

• Minna Yu, Monmouth University