The implications of cash flow forecasts for investors' pricing and managers' reporting of earnings.

摘要

I examine the role of analysts' cash flow forecasts on both investors' pricing and managers' reporting of earnings. I find that when setting stock prices, investors place more (less) weight on the cash (accrual) component of earnings for firms with a cash flow forecast, and that investors shift this weighting in the years immediately following analysts' initiation of cash flow coverage. Furthermore, the weight investors assign to these earnings components is a function of firm-specific factors predicted to affect the usefulness of the underlying cash flow information. I also find that for firms with a cash flow forecast, the cash (accrual) component of earnings is more (less) predictive of future firm prospects, consistent with analysts successfully choosing firms for which to issue a cash flow forecast. Lastly, I document that managers are more likely to boost operating cash flows if the firm has a cash flow forecast, suggesting that the nature of the capital market pressure affects the mechanism through which earnings are managed.