Earnings Quality and the Joint Issuance of Analyst Earnings and Revenue Forecasts

• In Event: Financial Accounting & Reporting # 1
  In Paper Session: Financial Accounting and Reporting # 1

Abstract

This study investigates the role of earnings quality in analysts’ decisions to supplement their I/B/E/S reported earnings forecasts with revenue forecasts. We show that as earnings quality declines, the accuracy and value-relevance of earnings forecasts, but not of revenue forecasts, declines. Consequently, when earnings quality is low, revenue forecasts become increasingly useful for valuing firms and investors’ reliance on and demand for revenue forecasts increases. Analysts increase their reporting of revenue forecasts in response to higher investor demand for these forecasts when earnings quality is low.

Authors

• Michael Eames, Santa Clara University

• Pawel Bilinski, Manchester Business School