The Factor Structure and the Economic Drivers of Non-Earnings Financial Statement Forecasts

• In Event: Forecasting and Disclosure

Abstract

This study analyzes the joint production of non-EPS forecasts and the economic drivers of these forecasts. Using Independent Component Analysis, we find that the factor structure of non-earnings financial statement estimates is explained by five independent components. Two of these components are related to cash flows, one with dividends, one with book values and finally a component that summarizes the income statement. Regressions designed to explain these components show that these forecast production decisions are related to firms’ asset tangibility, expense structure and excess returns. In addition, firms that pay a dividend tend to have less income statement and capital expenditure estimates relative to earnings estimates. Finally, some weak support is found for the ownership structure of firms influencing analysts’ non-EPS production choices.

Author

• Thaddeus Andrew Neururer, Boston University