Analysts’ use of earnings components in predicting future earnings

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Analysts’ use of earnings components in predicting future earnings

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dc.contributor.advisor Jennings, Ross (Ross Grant)
dc.creator Bratten, Brian Michael
dc.date.accessioned 2009-10-16T18:04:30Z
dc.date.available 2009-10-16T18:04:30Z
dc.date.created 2009-08
dc.date.issued 2009-10-16T18:04:30Z
dc.identifier.uri http://hdl.handle.net/2152/6551
dc.description.abstract This dissertation examines the general research issue of whether the components of earnings are informative and specifically 1) how analysts consider earnings components when predicting future earnings and 2) whether the information content in, and analysts’ use of, earnings components have changed through time. Although earnings components have predictive value for future earnings based on each component’s persistence, extant research provides only a limited understanding of whether and how analysts consider this when forecasting. Using an integrated income statement and balance sheet framework to estimate the persistence of earnings components, I first establish that disaggregation based on the earnings components framework in this study is helpful to predict future earnings and helps explains contemporaneous returns. I then find evidence suggesting that although analysts consider the persistence of various earnings components, they do not fully integrate this information into their forecasts. Interestingly, analysts appear to be selective in their incorporation of the information in earnings components, seeming to ignore information from components indicating lower persistence, which results in higher forecast errors. Conversely, when a firm’s income is concentrated in high persistence items, analysts appear to incorporate the information into their forecasts, reducing their forecast errors. I also report that the usefulness of components relative to aggregate earnings has dramatically and continuously increased over the past several decades, and contemporaneous returns appear to be much better explained by earnings components than aggregate earnings (than historically). Finally, the relation between analyst forecast errors and the differential persistence of earnings components has also declined over time, indicating that analysts appear to recognize the increasing importance of earnings components through time.
dc.format.medium electronic
dc.language.iso eng
dc.rights Copyright © is held by the author. Presentation of this material on the Libraries' web site by University Libraries, The University of Texas at Austin was made possible under a limited license grant from the author who has retained all copyrights in the works.
dc.subject Earnings -- prediction methods
dc.subject Earnings -- analysis
dc.subject Business analysts
dc.subject Earnings components
dc.subject Aggregate earnings
dc.subject Analyst forecast errors
dc.title Analysts’ use of earnings components in predicting future earnings
dc.description.department Accounting
dc.type.genre Thesis
dc.type.material text
thesis.degree.department Accounting
thesis.degree.discipline Accounting
thesis.degree.grantor The University of Texas at Austin
thesis.degree.level Doctoral
thesis.degree.name Doctor of Philosophy

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