Research On Earnings Forecasts Of Interim Reports

As for earnings forecasts of interim reports, there has been a large of research producing abundant productions in America. Their research has found that earnings forecasts using earnings information of interim reports are more accurate than those only using earnings information of annual reports. Whereas, these conclusions from American research on this question may not be fully applicable in China because of Chinese particular conditions. Therefore, in order to further realize and prove predictive ability of interim reports in China and have Chinese investors better forecast earnings in the future period using earnings information of interim reports, this paper makes a more systematic and thorough research on this question based on relevant research at home and abroad.Listed companies in China must disclose quarterly reports by code from the first quarter of 2002, so there are few of research productions in this field because of the data limitation. In 2003, Guo Jing studied earnings forecasts of semi-annual reports during 1997 to 2000 based on listed companies with A-share in Shenzhen's securities Exchange market, and had a conclusion that earnings forecasts using interim reports are superior to those only using annual earnings. This paper makes a comparison of predictive ability between quarterly reports and annual reports using data from CCER and CSMAR during 2002 to 2006, in order to observe whether forecasts using quarterly earnings are more accurate than only using annual earnings in predicting the annual outcome, whether predictive Ability rises gradually along with using earnings disclosed in next quarterly reports, and whether there are apparent discrepancies among predictive accuracy of different industries. At the same time, this paper also studies the influence of earnings management, such as expense capitalization, non-regular income etc on earnings forecasts by comparing absolute percentage errors of forecasts from three variables: sales revenue, EPS from operating profits and EPS from net profits.Conclusions of this paper: At large, earnings forecasts using interim reports are superior to those only using annual reports except for EPS's forecasts in the first quarter. The highest predictive accuracy is from sales revenue among these three variables, and predictive ability of EPS from net profits is a bit better than that of the other EPS. Predictive ability increasingly rises along with next quarterly earnings disclosed. There are apparent discrepancies among earnings forecasts from different industries, and the same quarterly predictor is not along excellent during three quarters in a industry.Finally, this paper analyses reasons for predictive errors from these aspects of information disclosed and predictors, and puts forward some advice for improving earnings forecasts of interim reports in China.