Does Analyst Experience Affect Their Understanding of Non-Financial Information? An Analysis of the Relation between Patent Information and Analyst Forecast Errors.

摘要

This study examines whether analyst experience affects the relation between patent information and analyst forecast errors. U.S. Generally Accepted Accounting Principles require that firms expense all in-house research and development (R&D) costs. This means that even when R&D activities produce intangible assets with future economic benefits, firms cannot capitalize R&D costs as assets. Consequently, financial statements are largely deficient in the information they provide regarding the output of R&D activities. However, patent information is one type of non-financial information about R&D output that is publicly available.;Using updated patent data, I confirm the results of prior studies that find a positive association between patent citations and future firm performance. I also confirm the positive association between the absolute value of analyst forecast errors and patent citations. Next, in my main tests, I examine whether analyst experience affects the relation between patent information and analyst forecast errors (absolute value and signed). I find that analysts with more experience are not better at incorporating patent information to make more accurate earnings forecasts. Instead, they incorporate patent information to make more optimistic earnings forecasts than analysts with less experience. My findings should be of interest to standard setters in deciding whether to require firms to disclose patent information because this information should be useful to investors and analysts.