| Summary: | 博士 === 國立臺灣大學 === 國際企業學研究所 === 100 === We investigate the marginal information implications in analyst multi-year earnings forecasts given the current-year forecasts. In this paper, we explore the underlying reasons for analyst to give multi-year earnings forecasts, and examine the relationships between multi-year predictions and their corresponding values of analysts'' recommendations, future EPS estimates, and the rates of return when multi-year earnings forecasts are incorporated into corporate valuation models, respectively.
We find that the frequencies analysts make multi-year forecasts depend on the extent of investors’ focus on the businesses. Moreover, common investors’ needs for professional judgments appear to drive analysts to report multi-year forecasts. We thereby partition our samples into two groups, the firms that analysts may feel obligated to provide multi-year forecasts for (hereafter the obligated group) and the firms that analysts can discretionarily choose whether or not to make multi-year forecasts. Analyst multi-year forecasts for the latter group of forecasts appear to be more informative. We make comparisons between analyst’s multi-year forecasts and the proxy estimates based on their current-year forecasts and one plug the growth estimate. We document that for the obligated group firms they provide their multi-year estimates closer to their proxy estimates and less informative given the current-year forecasts as compared with the other group analysts’. By establishing a proxy to measure permanent components, we extract temporary elements from one-year-ahead forecasts so as to clarify the roles analysts assign to these two forecasts. The permanent components exhibit marginal explanatory ability to the final recommendations. It turns out that two forecasts complement each other for different purposes. The long-windowed returns test findings show that multi-year forecasts make marginal contribution to business valuation, providing additional value-relevant information that helps forming long-term investment strategy.
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