The Impact Of Earnings Persistence On Analyst Forecasting Accuracy: An Empirical Analysis Based On Us And Uk Analyst Forecasts
Analysts are one of the most important and informed users of financial reports. This paper examines the perceived effects of specific earnings components on analyst forecast accuracy by separating earning components according to relative earnings persistence and assigning them to different models. The aim of this research is to provide insight into the differences between specific earnings components in terms of forecasting future profitability by analysts. This relation is tested through the use of five regression models, with samples taken from US and UK firms during the years 2006 till 2011. Also some emphasis is given to the association between the accounting standards used within the sample firms as well as analyst forecast accuracy. Results show that earnings component disaggregation improve the explanatory power of the models, so that the persistence of earnings components may result into progressively greater predictions of future profitability. Equally, transitory earnings components have a negative effect on analyst forecast accuracy, and specifically have a stronger effect in a short time horizon for US firms. The results also show that the effects of accounting standard used by the sample firms were deemed not useful or reasonable due to lack of comparability between the country samples.