Article1990

On Bankruptcy Indicators From Analysts’ Earnings Forecasts

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17 citations0/0 files storedJournal of Accounting Auditing & Finance

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Financial Distress and Bankruptcy Prediction Auditing, Earnings Management, Governance Forecasting Techniques and Applications

Abstract

Research has documented that forecasts of future earnings made by financial analysts capture aspects of risk and expected return for firms, and reflect information not reflected in firms’ accounting reports. This study investigates the usefulness of measures developed from analysts’ earnings forecasts as indicators of impending bankruptcy. Results indicate that healthy and failing firms differ significantly with respect to four properties of earnings forecasts: forecast level, forecast error, forecast bias, and forecast dispersion. When combined in a model, measures related to these four forecast properties are able to predict bankruptcy in the year prior to failure as accurately as more traditional approaches using accounting ratios.

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References

1966Financial Ratios As Predictors of Failure 1984A Further Empirical Investigation of the Bankruptcy Cost Question 1985Introducing Recursive Partitioning for Financial Classification: The Case of Financial Distress 1982Financial analysts' forecasts of earnings 1987Security analyst superiority relative to univariate time-series models in forecasting quarterly earnings 1980An Empirical Investigation of the Voluntary Disclosure of Corporate Earnings Forecasts 1979The information content of financial analysts' forecasts of earnings 1985Security Analyst Multi-Year Earnings Forecasts and the Capital Market

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2003A Simultaneous Equations Analysis of Analysts’ Forecast Bias, Analyst Following, and Institutional Ownership 2002Analysts' forecasts of Japanese firms' earnings: additional evidence 1991CASH FLOW SIGNALS AND ANALYSTS' EARNINGS FORECAST REVISIONS

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