A Study on the Relationship between Analysts’ Cash Flow Forecasts Issuance and Accounting Information: Evidence from Korea

Round  1

Reviewer 1 Report

The main purpose of this paper is to investigate the relationship between the future cash flow forecast information provided by financial analysts and accounting information. The authors examine whether the joint issuance of financial analyst earnings forecasts and cash flow forecasts from 2011 to 2015 contributes to the information usefulness of Korean listed firms. The empirical results show that firms with both earnings forecasts and cash flow forecasts are more likely to have higher earnings forecast accuracy than those without cash flow forecasts. The information asymmetry between the manager and the investor can be reduced based on the rich information environment.

This is an interesting paper which makes contributions towards related literature. I list my comments as follows.

This study is to extend previous research, Call et al. (2009), to Korea listed firms. Since there are various studies on cash flow forecasts of financial analysts, the motivation of this research should not just be few studies in Korea yet. The authors should point out the difference between US and Korea capital market more clearly. You should try to explain how this difference to affect empirical outcomes in these two countries.

Previous studies have not conclusions on the usefulness of financial analysts cash flow forecasts. For example, Givloy et al. (2009) argue that financial analysts cash flow forecasts are a simple extension of earnings forecasts. Therefore, they have opposite views on prediction. The informativeness of cash flow forecasts might be different because forecasts are issued by different kind of analysts. I am curious whether the ability of security analysts would affect information asymmetry. To issue cash flow forecasts requires more effort. Analysts with high ability might be more likely to issue cash flow forecasts. It may not cash flow forecasts contribute to the reduction of information asymmetry. The reduction of information asymmetry results from firms covered by more good analysts.

In Line 354, this study mentions that “Analysts’ earnings forecast accuracy (AF_ACC) is calculated by multiplying the absolute value of the net earnings per share minus earnings per share by –1 and standardized by stock price.” It should be “analyst earnings forecasts minus actual earnings.”

Accounting to Appendix 1, the authors use stock price in year t to be a deflator. Mostly, absolute value of forecast error is standardized by stock price in previous period.

Minor suggestions:

(1) The authors should recheck Appendix 1. There are some writing errors.

(2) In Line 210, “Pae and Yoon (2012)” should be Pae and Yoon (2011).

I hope that my comments will help the authors to improve the quality of the paper.

Author Response

    Thank you for your attention.

    I was able to improve the quality of the thesis through the point that the reviewer pointed out.

    Thank you.

    The answer to the review is attached as a file.

Author Response File: Author Response.pdf

Reviewer 2 Report

I think that the paper is well written and investigated. The theme is interesting and the authors succeed in addressing it properly. I have few observations as follows:

I found the abstract to be rather long - please make it shorter and put an emphasis on your advancements made in the field, while mentioning the current situation regarding the cash flow forecast issuance. Also, there are some parts in the abstract that resemble to the introduction section - try to reduce the redundant information by keeping it only in the abstract or in the introduction. Please argument more your statements, e.g. in page 2, rows 83-84 it is written: "Analysts’ cash flow forecasts are useful for investors, as reported by McInnis and Collins (2011) 83 [10], Call et al. (2009) [11], Call et al. (2013) [12] and Brown et al. (2013) [13]." - the question is why? Try to add more insight to the papers you are presenting. Also, I think Figure 1 should have a drawing under Panel A and another one under Panel B - please check if I am right.

Author Response

   Thank you for your attention.

    I was able to improve the quality of the thesis through the point that the reviewer pointed out.

    Thank you.

    The answer to the review is attached as a file.

Author Response File: Author Response.pdf