The Economic Consequence of Analysts’ Cash Flow Forecasts on Firms’ Information Environment: Evidence from Bid-Ask Spread

• In Event: Financial Accounting & Reporting

Abstract

This study examines the effect of initiation of analysts’ cash flow forecasts on firms’ information environment. Extent literature finds mixed results regarding the usefulness of cash flow forecasts. Using average bid-ask spread as a proxy for information asymmetry, the ordinary least square results suggest that the presence of cash flow forecasts is positively associated with information transparency. Difference-in-differences analyses robustness test results indicate consistent findings. To the best of our knowledge, this is the first study to directly examine the association between cash flow forecasts and information asymmetry. This study shows an additional economic benefit of cash flow forecasts.

Authors

• Abhijit Barua, Florida International University

• Mengyu Ma, University of Central Arkansas