Effects of the life cycle stage on errors in earnings forecasts and their value relevance
DOI:
https://doi.org/10.17524/repec.v19.e3725Keywords:
Financial Analysts, Analysts' forecasts, Forecast Error, Value Relevance, Firm Life CycleAbstract
Objective: This study analyzed the effects of the company's life cycle stages on analyst forecast error and on value relevance.
Method: A sample of companies listed on the Brazilian capital market was analyzed from 2011 to 2022 with data collected from Refinitiv Eikon® and analyzed using regression models estimated using the System Generalized Method of Moments (System GMM).
Results: The results suggest a lower error in earnings per share forecasts in the maturity phase and that investors respond negatively to earnings forecast errors with an optimistic bias, with different intensities depending on the firm's life cycle stage. Therefore, the characteristics of the operating environment and more persistent results of mature companies are associated with lower forecast errors. In addition, the relevance of analysts' earnings forecasts is significantly associated with share prices.
Contributions: The findings provide useful evidence for different market agents, including investors, financial analysts, and corporate managers. Studies that investigate the value relevance assigned by investors to different types of information - such as analysts' forecast errors - are essential for better understanding of how the market reacts to signals about the quality of information provided by financial intermediaries, such as financial analysts.
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