Do Analysts Understand the Valuation Implications of Accounting Conservatism when Forecasting Target Prices?

• Main Authors: KIM, Jae Bum, Nekrasov, Alexander, Shroff, Pervin K., Simon, Andreas
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Accounting; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/soa_research/894; https://ink.library.smu.edu.sg/context/soa_research/article/1893/viewcontent/conf13kim.pdf
• Institution: Singapore Management University

Conservatism in earnings does not have a direct impact on the present value of future cash flows. This paper examines whether financial analysts correctly undo the effect of accounting conservatism incorporated in their own earnings forecasts in arriving at their target price forecasts. Based on pri...