Analysts' Cash Flow Forecast,Earnings Forecast Accuracy And Evaluation Effect

Based on their professional and information advantage,the financial analysts understand and process the public information from listed firms,and disclose their forecasts reports.And finally their information process and transimit work can mitigate the information asymmetry between listed firms and investors,and can improve the capital market efficiency.The financial analysts team in China grows bigger,which benefit the compeleteness and future prospect of Chiniese capital market.Hence,it becomes very popular to research the behavior,effect,and institutional construction of financial analysts in the academic field.In the developing process of financial analysts,there is another important change that more and more cash flow forecasts are provided in the analyst forecasts reports.According to finance theory,the assets value equals to present value of future cash flow.Hence,cash flow forecasts in analysts' reports can offer important information to help investors judge the internal value of firms,make right decisions and finally improve the pricing efficiency of stock market.More importantly,mispricing is very common in China stock market,and prior literatures focus more on earnings forecasts and stock recommendations,so the research on behavior and economic consequence of analysts cash flow forecasts have very important theoretical contributions and practical meanings.Considering the special institutional background of capical market and financial analysts in China,this paper use the listed firm during 2001-2012 as our sample to investigate why the financial analysts disclose cash flow forecasts and the economic consequences of their cash flow forecasts.Firstly,this paper investigate whether the personal characteristic of financial analysts,firm characteristics,operating risk and so on,push them to report cash flow forecasts.Secondly,this paper also investigate whether financial analysts' cash flow forecasts impove the quality of earnings forecasts.Finally,if analysts' cash flow forecasts can provide extra information and improve earnings forecasts accuracy,whether investors realize and response to it.If it can,it means analysts' cash flow forecasts have information contents.This paper has seven parts.The second chapter analyses the development process of Chinese capital market and institutional background of Chinese financial analysts.The third chapter reviews prior literatures related to the financial analysts.The forth chapter discusses and investigate the factors of why financial analysts issue cash flow forecasts in their reports.The fifth chapter analyze whether analysts' cash flow forecasts affect the earnings forecasts accuracy.The sixth chapter examines the different relationship between analysts' cash flow forecasts and their earnings forecasts accuracy in different firms.The seventh chapter discusses and examines whether analysts' cash flow forecasts have information contents and make investors response more.The eighth chapter is the conclusion and the limit of this paper.This paper has several findings as following.Firstly,this paper discusses the factors that affect the behaviors of analysts' cash flow forecasts disclosing.And we find that the financial analysts in bigger broker,have more experiences,covering more industries are more likely to issue cash flow forecasts in their reports.And the financial analysts are more likely to issue cash flow forecasts to the firms with better corporate governance and less operating risk.Secondly,this paper finds that the financial analysts' cash flow forecasts can improve their earnings forecasts accuracy.The earning forecasts which has analyst's cash flow forecasts are accurater than that without analyst's cash flow forecasts.Moreover,the more frequent analysts' cash flow forecasts,the more accurate of earnings forecasts.Thirdly,the relationship between analyst's cash flow forecasts and the accuracy of earnings forecasts is more obvious in the firms with more earnings volatility,more revenue volatility,more operating cash flow volatility,and worse corporate governance.Finally,we find that the analysts' reports with cash flow forecasts have stronger market reactions compared with that without it.Moreover,more frequency of cash flow forecasts the financial analysts issue,the stronger market response.All in all,these findings imply that analysts' cash flow forecast become more and more important in the financial analysts' reports.And analysts' cash flow forecasts impose major effects on the improvement of earnings forecasts quality and investors reaction,and finally can lead resources allocate efficiently.This paper has several contributions as following.Firstly,this paper examines systematically and completely the effects and economic consequences of financial analysts issuing cash flow forecasts,which complete the prior literatures about financial analysts.So far,the prior papers focused more on earnings forecasts,stock recommendations and interests conflicts of financial analysts,less on cash flow forecasts(Call et al.,2009;DeFond and Hung,2003;McInnis and Collins,2011;Wang et al.,2012).Differenct from the prior literatures,this paper finds that more and more analysts issue cash flow forecasts in their reports,which means that the analysts' cash flow forecasts become more important than ever before.We also find that analysts' cash flow forecasts have information contents and incur investor's reaction.Hence,these findings can complete the research results of financial analysts.Secondly,this paper has several new findings different from prior literatures based on the developed capital market,such as USA.First,some researchers(DeFond and Hung,2003)found that the reasons of financial analysts issuing cash flow forecasts in their reports was that the market participants need the extra information of cash flow forecasts.Actually,(DeFond and Hung,2003)based on information demand hypothesis.However,it is very difficult to apply the findings based on developed capital market to the developing market,such as China.Hence,based on information supply view,this paper analyses the reasons of financial analysts issuing cash flow forecasts,which provide a new angle to understand the behavior of analysts' cash flow forecasts.Secondly,some researchers investigated the influence of analysts' cash flow forecasts to earnings forecasts accruacy(Call et al.,2009;Yuan et al.,2014),but no paper examine in which situation it happenes,and less paper investigate the market reaction of cash flow forecasts issued by financial analysts(DeFond and Hung,2003).This paper can fill in this gap.Finally,this paper has important practical meanings.Based on the developing market of financial analysts and the facts of more and more financial analysts issuing cash flow forecasts,the effects and consequences of analysts' cash flow forecasts become very popular for the users of analysts' forecast reports.This paper can provide evidence to answer these questions,and hence help market participants understanding the information of cash flow forecasts in analysts reports better,and finally help them make right decisions.