The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation

This paper critically evaluates the use of analysts forecasts in accounting-based valuation. Specifically, I assess the usefulness and the limitation of analysts forecasts in predicting future earnings and in explaining the market-to-book ratio, in light of a comprehensive set of 22 explicit informa...

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Main Author: CHENG, Qiang
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2005
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Online Access:https://ink.library.smu.edu.sg/soa_research/830
https://ink.library.smu.edu.sg/context/soa_research/article/1829/viewcontent/SSRN_id556548.pdf
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spelling sg-smu-ink.soa_research-18292018-07-13T06:05:29Z The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation CHENG, Qiang This paper critically evaluates the use of analysts forecasts in accounting-based valuation. Specifically, I assess the usefulness and the limitation of analysts forecasts in predicting future earnings and in explaining the market-to-book ratio, in light of a comprehensive set of 22 explicit information items, including: economic rent proxies, conservative accounting proxies, earnings quality signals, transitory earnings proxies, industry characteristics, and risk and growth proxies. While analysts forecasts capture 45–83% of the information from these sources depending on model specifications, they do not appear to fully incorporate certain information items. In particular, proxies for conservative accounting and transitory earnings are incrementally useful in predicting future earnings; proxies for economic rents, conservative accounting, and risk are incrementally useful in explaining the market-to-book ratio. Collectively, these results validate the use of analysts forecasts as a parsimonious proxy for forward-looking information in accounting-based valuation and suggest how to improve on their use. 2005-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/830 info:doi/10.1007/s11142-004-6338-4 https://ink.library.smu.edu.sg/context/soa_research/article/1829/viewcontent/SSRN_id556548.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University accounting-based valuation earnings analysts forecasts market-to-book ratios Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic accounting-based valuation
earnings
analysts forecasts
market-to-book ratios
Accounting
Corporate Finance
spellingShingle accounting-based valuation
earnings
analysts forecasts
market-to-book ratios
Accounting
Corporate Finance
CHENG, Qiang
The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation
description This paper critically evaluates the use of analysts forecasts in accounting-based valuation. Specifically, I assess the usefulness and the limitation of analysts forecasts in predicting future earnings and in explaining the market-to-book ratio, in light of a comprehensive set of 22 explicit information items, including: economic rent proxies, conservative accounting proxies, earnings quality signals, transitory earnings proxies, industry characteristics, and risk and growth proxies. While analysts forecasts capture 45–83% of the information from these sources depending on model specifications, they do not appear to fully incorporate certain information items. In particular, proxies for conservative accounting and transitory earnings are incrementally useful in predicting future earnings; proxies for economic rents, conservative accounting, and risk are incrementally useful in explaining the market-to-book ratio. Collectively, these results validate the use of analysts forecasts as a parsimonious proxy for forward-looking information in accounting-based valuation and suggest how to improve on their use.
format text
author CHENG, Qiang
author_facet CHENG, Qiang
author_sort CHENG, Qiang
title The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation
title_short The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation
title_full The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation
title_fullStr The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation
title_full_unstemmed The Role of Analysts’ Forecasts in Accounting-based Valuation: A Critical Evaluation
title_sort role of analysts’ forecasts in accounting-based valuation: a critical evaluation
publisher Institutional Knowledge at Singapore Management University
publishDate 2005
url https://ink.library.smu.edu.sg/soa_research/830
https://ink.library.smu.edu.sg/context/soa_research/article/1829/viewcontent/SSRN_id556548.pdf
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