DOI: 10.1111/jifm.

12129

O R I G I N A L AR T I C L E

The impact of forecasting cash flows on enhancing

analysts’ own earnings forecasts: International
evidence and the effect of IFRS adoption
1 2
Changjiang Wang | Minna Yu
1
Lindner College of Business, University of
Cincinnati, Cincinnati, OH, USA
2 Using a large international sample from 1995 to 2018, we
Leon Hess Business School, Monmouth
University, West Long Branch, NJ, USA
Correspondence
Minna Yu, Leon Hess Business School,
Monmouth University, 400 Cedar Avenue,
West Long Branch, NJ 07764, USA.
Email: miyu@monmouth.edu
Abstract
find that individual analysts’ earnings forecasts accompa-
nied with cash flow forecasts are more accurate than those
not accompanied with cash flow forecasts, suggesting
that the findings for the United States in Call et al. (2009)
apply to other countries. In addition, using a difference- in-
differences design, we find that the positive association
between cash flow forecast provisions and earnings fore-
cast accuracy is weakened after mandatory IFRS adoption.
Furthermore, we find that the reduced usefulness of fore-
casting cash flow for analysts’ own earnings prediction
after mandatory IFRS adoption is more pronounced in
countries with a common law origin and strong legal
enforcement as opposed to countries with a code law origin
and weak legal enforcement.

KEYWORDS
analysts, cash flow forecasts, country characteristics, difference-in-
differences design, earnings forecast accuracy, IFRS adoption

1 | INTRODUCTION

There are debates and evidence in the United States as to whether the cash flow forecasts are sim-
ple extension of earnings forecasts or these forecasts reflect analysts’ public and private informa-
tion regarding firms’ cash flow (e.g., Givoly et al., 2009; Call et al., 2009 and 2013). Specifically,
Call et al. (2009) argue that when analysts forecast cash flows, they adopt a structured approach to

© 2021 John Wiley & Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

J Int Financ Manage Account. 2021;00:1–22.

wileyonlinelibrary.com/journal/jifm | 1
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forecasting. That is, those analysts who forecast cash flows also forecast a full set of financial state-
ments. This structured approach to forecasting financial statements results in more accurate earnings
forecasts. In support of their theory, they provide U.S. evidence that analysts’ earnings forecasts are
more accurate when accompanied with cash flow forecasts relative to those not accompanied with
cash flow forecasts. We first verify that the U.S. results are generalizable to other countries. In this
paper, we first examine whether those analysts who provide cash flow forecasts have their earnings
forecasts improved relative to those who do not provide cash flow forecasts.
We then investigate whether the mandatory adoption of International Financial Reporting
Standards (IFRS hereafter) decreases the impact of analysts’ cash flow forecast issuance on their
own earnings forecast accuracy. We examine the impact of analysts’ cash flow forecast issuance on
their earnings forecasts in the context of IFRS adoption because the mandate adoption of IFRS is a
shock to account- ing standards and earnings quality and has increased the quantity and quality of
the accounting infor- mation environment (e.g., Barth et al., 2008; Landsman et al., 2012; Lang &
Stice-Lawrence, 2015; Li & Yang, 2016). Specifically, IFRS adoption enhances analysts’ earnings
forecast accuracy (i.e., Byard et al., 2011). Analysts’ earnings forecast accuracy is enhanced because
analysts improve their finan- cial statement-based forecasts due to IFRS adoption (Demmer et al.,
2019). Therefore, we anticipate that, after mandatory IFRS adoption, the improvement in earnings
forecasts as a result of analysts’ own cash flow forecasting is reduced.
Using a large international sample over 1995–2018, we first document that the issuance of cash
flow forecasts is positively associated with earnings forecast accuracy, suggesting that the U.S. find-
ings in Call et al. (2009) generalize to an international setting. More importantly, as expected, we
find that the association between cash flow forecast provisions and earnings forecast accuracy is
weaker after mandatory IFRS adoption.
In this paper, we also examine whether and how institutional factors explain the cross-country
vari- ation in the IFRS effect. We use country's legal origin and legal enforcement to measure
country-level reporting incentives. On the one hand, the IFRS impact on the predictability of
earnings is stronger in countries with stronger reporting incentives and enforcement mechanisms
(i.e., Byard et al., 2011; Demmer et al., 2019). This suggests that the IFRS effect is more
pronounced in countries with stron- ger reporting incentives (i.e., common law countries and
countries with strong legal enforcement). On the other hand, Li and Yang (2016) argue that IFRS
adoption changes firms’ reporting incentives, with this change larger in code law countries because
IFRS has a common law origin and a capital market focus. In support of their argument, they
document that IFRS leads to greater management forecasts increase in code law countries relative to
in common law countries. Accordingly, we expect that the IFRS effect on the benefit of cash flow
forecasts to analysts’ earnings forecasts is more pronounced in code law countries. We therefore test
these two competing hypotheses. Our results support that the impact of IFRS adoption is larger in
common law and strong enforcement countries as opposed to code law and weak enforcement
countries.
Our paper contributes to the literature in the following ways. First, our paper provides
international evidence on the effect of cash flow forecast provisions on improving analysts’
forecasts. Given the pervasive provisions of cash flow forecasts outside the United States, it is
desirable to document that the U.S. findings apply to other countries.
Second, our paper contributes to the research on how the improvement of accounting standard
(i.e., IFRS) affects analyst forecasts. Byard et al. (2011) document that mandatory IFRS adoption
improves financial analysts’ earnings forecasting performance. Demmer et al. (2019) document that
one of the mechanisms that IFRS adoption improves financial analysts’ earnings forecast
performance is through its improvement of financial statement fundamental-based forecast accuracy.
Our findings extend this
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line of research and reveal that, in the presence of more and higher quality firm-specific information
induced by IFRS, forecasting cash flow is less useful in improving analysts’ own earnings forecasts.
Third, our paper sheds light on how the IFRS effect on reducing the benefit of forecasting cash
flow varies across countries. Although existing research papers have two different views in terms of
how IFRS adoption influences the reporting incentives in different countries (i.e., Byard et al., 2011;
Demmer et al., 2019; Li & Yang, 2016), our results are supportive of the research documenting a
more pronounced IFRS impact in countries with stronger reporting incentives before their IFRS
adoption.
The remainder of this paper is organized as follows: Section 2 reviews the relevant literature, and
Section 3 develops hypotheses. Section 4 describes the research design, and Section 5 describes our
data and sample. Section 6 presents the empirical results. Section 7 summarizes and concludes the
study.

2 | LITERATURE REVIEW OF ANALYSTS’ CASH

FLOW FORECASTS

DeFond and Hung (2003) is the first study to examine analysts’ cash flow forecasts. They find that,
in the United States, the provisions of cash flow forecasts are mainly due to analysts intending to
meet the demand of investors for firms that have poor earnings quality. Using an international
sample, DeFond and Hung (2007) find that analysts are more likely to provide cash flow forecasts in
countries where investor protection is weak and disclosure level is low, consistent with analysts
reacting to in- vestors’ demand for earnings information to issue cash flow forecasts. Contrary to
DeFond and Hung (2003) and (2007), who use demand theory to explain the provisions of cash flow
forecasts, Bilinski (2014) develops a supply theory to explain the provisions of cash flow forecasts.
He argues that, when earnings quality is low, analysts are not able to provide accurate forecasts of
accruals, and therefore accurate forecasts of cash flow, which makes them reluctant to report cash
flow forecasts. In support of his theory, he shows that analysts are not willing to disseminate their
cash flow forecasts for firms with low earnings quality.
Ertimur and Stubben (2005) find that both investors’ demand and analysts’ willingness to provide
cash flow forecasts explain the issuance of cash flow forecasts. Specifically, analysts issue cash flow
forecasts to differentiate themselves when earnings are in poor quality. In addition, analysts associ-
ated with brokerages of small size have less incentives to provide cash flow forecasts, suggesting
that additional costs of cash flow forecasting discourage analysts from providing such forecasts. He
and Lu (2018) find that mandatory IFRS adoption is associated with more provisions of sales and
cash flow forecasts, consistent with the supply theory with the underlining assumption that earnings
quality improved after IFRS adoption. Fang and Hope (2020) find that analyst teams and teams with
a higher level of diversity are more likely to issue cash flow forecasts and use discounted cash flow
valuation models in their reports. As such, Fang and Hope (2020)’s findings also confirm the supply
theory in that analysts are more productive and more specialized when they work in teams instead of
individually.
In addition to the determinants of cash flow forecasts, prior research has also examined the con-
sequences of cash flow forecast provisions. Several studies have documented empirical evidence on
the impact of cash flow forecasts’ availability on managerial behavior. McInnis and Collins (2011)
investigate how managers react to analysts’ cash flow forecasts and find management undertakes
less accrual manipulation when cash flow forecasts are available. Lee (2012) finds that cash flow
forecasts motivate managers to opportunistically increase reported operating cash flows. Ayers et
al. (2018)
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find that analysts’ cash flow forecasts give managers the motivation to enhance the firm's cash flow
position through tax avoidance activities.
Prior research also provides evidence on the impact of cash flow forecast availability and/or ac-
curacy on analysts’ forecasting performance and their career outcomes. Call et al. (2009) document
that analysts’ earnings forecasts are more accurate when they also provide cash flow forecasts. They
also find a negative association between cash flow forecast accuracy and brokerages’ firing
decisions, suggesting that the benefit for analysts to providing cash flow forecasts. Lehavy (2009)
and Givoly et al. (2009) challenge the conclusion of Call et al. (2009) and provide empirical
evidence that ana- lysts’ cash flow forecasts are of low quality in that they are simply adding back
noncash items to its own earnings forecasts. Call et al. (2013), however, find that cash flow forecasts
are of high quality in that analyst use disaggregate information in their cash flow forecasts.
Several studies have examined the impact of cash flow forecasts on capital market participants.
Brown et al. (2013) show that firms meeting both earnings and cash flow forecasts have significantly
higher abnormal stock returns around quarterly earnings announcement dates, compared to firms
meeting earnings forecasts but missing cash flow forecasts. In addition, they find that firms missing
earnings forecasts but meeting cash flows forecast experience significantly higher abnormal stock
returns than firms missing both forecasts. Their evidence suggests that investors value cash flow
fore- casts. With the U.S. data, both Mohanram (2014) and Radhakrishnan and Wu (2014) provide
evidence on lower accrual anomaly for firm-years that at least one cash flow forecast is available.
The research on cash flow forecasts outside of the United States is summarized as follows.
DeFond and Hung (2007) document that analysts are more motivated to issue cash flow forecasts in
addition to earnings forecasts in code law countries (as opposed to common law countries) where
investor protection is low and earnings quality is relatively poor and cash flow forecasts are in high
demand. Gordon et al. (2014) find that the presence of analyst cash flow forecast reduces accrual
anomaly and this mitigating effect is stronger for firms domiciled in countries with stronger investor
protection. Wang and Yu (2021) document that the market reacts to the cash flow forecast revisions
incremental to analyst earnings forecast revisions, suggesting that cash flow forecasts are
informative to investors in a global context. Although this study is also in an international setting, it
is different from Wang and Yu (2021) in that this study examines whether the provision of cash flow
forecasts is useful to analysts themselves. Chen et al. (2019) document that, in a global setting,
analysts predict target prices more accurately only when analysts provide accurate cash flow
forecasts. One major difference between our paper and Chen et al. (2019) is that we draw upon the
IFRS setting and focus on the effect of IFRS adoption on the benefits of forecasting cash flows as
well as the cross-country variation in the IFRS effect.

3 | HYPOTHESES DEVELOPMENT

3.1 | The impact of the adoption of IFRS on the association between cash
flow forecast provisions and earnings forecast accuracy

The adoption of IFRS was a major regulatory event affecting companies worldwide, and it presents a
useful context for our analyses for several reasons. First, from the analysts’ perspective, mandatory
IFRS adoption represents a significant shock to accounting standards in that it was outside the
control of analysts. Second, prior research on IFRS adoption has largely documented the benefits of
IFRS, such as increase of financial reporting quality and increase in the usefulness of information to
external users (e.g., Barth et al., 2008, DeFond et al. 2011, Barth et al., 2012, Landsman et al., 2012,
Yip and
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Young 2012, Lang & Stice-Lawrence, 2015, Li & Yang, 2016, Demmer et al., 2019). For instance,
Barth et al. (2008) find that IAS voluntary adoption is associated with lower earnings management,
more timely loss recognition, and greater value relevance, suggesting that IAS adoption increases
accounting quality relative to local GAAP. Landsman et al. (2012) document that the information
content of earnings announcements, proxied by either abnormal return volatility or abnormal trad-
ing volume, increases from pre- to post-adoption for firms in countries that mandate IFRS adoption
relative to firms in countries that retain local GAAP, suggesting that IFRS earnings are perceived to
be of higher quality than local GAAP earnings. Yip and Young (2012) document that IFRS adop-
tion increases the financial reporting comparability for firms in European countries. Focusing on
qualitative disclosure, Lang and Stice-Lawrence (2015) find that annual reports prepared under IFRS
contain more disclosure but less boilerplate language than non-IFRS annual reports and those
reports prepared under IFRS are more comparable with each other than reports prepared under local
GAAP, suggesting that the quality of textual disclosures increases after the mandatory IFRS
adoption. Li and Yang (2016) document that firms are more likely to provide management earnings
forecasts after IFRS adoption, suggesting that voluntary disclosure increased after IFRS adoption.
Demmer et al. (2019) document significant out-of-sample improvement in financial statement-
based forecast accuracy around mandatory IFRS adoption.
Taken together, prior studies document that IFRS adoption has generally improved reporting
quality, financial statement comparability, qualitative disclosures in financial reports, voluntary dis-
closures, and facilitated fundamental analysis by external users. The increases in both quantity and
quality of firm-specific information will presumably help external users in their decision-making.
Consistent with this notion, Demmer et al. (2019) document a positive association between analyst
forecast accuracy and the improvement in financial statement-based forecast accuracy around IFRS
adoption.
The increases in financial reporting quality and the availability of more firm-specific informa-
tion affect both the demand and effect of analysts’ cash flow forecasts. For example, De Franco et
al. (2011) argue that comparability decreases information acquisition and processing costs and
increases the overall quantity and quality of information, thereby enhancing the investors and other
external users’ ability to understand and predict economic events. Based on prior empirical evidence
that IFRS adoption has improved information environment of firms, we predict that the usefulness of
cash flow forecasts to analysts’ themselves in forecasting future earnings will be less pronounced in
the post-IFRS relative to pre-IFRS adoption period. Therefore, we predict that the positive
association between analyst cash flow forecast issuance and earnings forecast accuracy will be
weaker after IFRS. We propose the following hypothesis in the alternative form:

Hypothesis 1: The positive association between cash flow forecast issuance and earnings
forecast accuracy is weaker post-IFRS adoption as opposed to pre-IFRS adoption.

3.2 | Cross-country variation in the impact of IFRS adoption

We next examine the cross-sectional variation in the effect of IFRS adoption on the association be-
tween cash flow forecast provisions and earnings forecast accuracy. Extant research suggests that the
benefits of IFRS depend largely on institutional factors. For example, Byard et al. (2011) find that
analysts’ forecast errors and dispersion decrease more after IFRS adoption for firms with stronger
incentives for transparent financial reporting (i.e., strong legal enforcement). Demmer et al. (2019)
find that analysts do not fully incorporate information in financial statement-based forecasts into
their
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earnings forecasts after IFRS adoption for firms in countries without concurrent changes in enforce-
ment. Relative to code law countries, common law countries are characteristic of firms with strong
reporting incentives (i.e., Ball et al., 2000, Bushman and Piotroski 2006). Therefore, we expect that
the IFRS effect on reducing the benefit of forecasting cash flow is stronger in countries with stronger
reporting incentives (i.e., common law countries and strong enforcement countries). That is,

Hypothesis 2a: The effect of mandatory IFRS adoption on the positive association be-
tween cash flow forecast provisions and earnings forecast accuracy is stronger in com-
mon law countries as opposed to code law countries, and in countries with strong legal
enforcement as opposed to countries with weak legal enforcement.

On the other hand, Li and Yang (2016) argue that IFRS adoption increases firms’ disclosing
incentives to a greater extent in code law countries than in common law countries because IFRS has a
common law origin and a capital market focus. Consistent with this argument, they find that code law
firms (instead of common law firms) tend to provide more voluntary disclosures after IFRS adoption.
They label it as the “catching-up effect”. Following this argument, we expect that:

Hypothesis 2b: The effect of mandatory IFRS adoption on the positive association be-
tween cash flow forecast provisions and earnings forecast accuracy is stronger in code
law countries as opposed to common law countries, and in countries with strong legal
enforcement as opposed to countries with weak legal enforcement.

4 | RESEARCH DESIGN

To provide international evidence on the impact of cash flow forecast provisions on earnings
forecast accuracy, we follow Call et al. (2009)’s model. Consistent with Call et al. (2009), we use
mean- adjusted measures of analyst variables (i.e., MFREQijct, MFEXPijct, MGEXPijct,
MNCOSijct, and MNSIC2ijct) to control for variations in forecasting characteristics across firm and
across year. Prior research on individual analyst forecasts uses a variety of ways to address the
interdependence among firms and years (e.g., Gleason and Lee 2003, Call et al., 2009; Hashim &
Strong, 2018). Consistent with prior research, we calculate analyst-clustered standard errors to
control for time-series depend- ence in earnings forecast accuracy (Petersen, 2009). Consistent with
DeFond and Hung (2007), we control for year fixed effects. Finally, because our sample is
composed of multiple countries, we therefore also control for country fixed effects.
Our model is specified as follows:

MAFEijct = α + þ1CFFijct + þ2LMAFEijct + þ3MAGEijct + þ4MFREQijct + þ5MFEXPijct

+þ6MGEXPit + þ7DTOP10it + þ8MNCOSit + (1)
þ9MNSIC2
, it ,
+ Countryc Yeart + sijct
t
+
c

Where MAFEijct = Mean-adjusted earnings forecast accuracy, calculated as the negative value of
analyst i's absolute forecast error for firm j in year t minus mean absolute forecast error across all
analysts following firm j in year t1;

CFFijct = 1 if analyst i issues both cash flow and earnings forecasts for firm j in year t, and 0 if analyst
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i only issues earnings forecasts for firm j in year t;
LMAFEijct = One period lagged of MAFEijct;

MAGEijct = Mean-adjusted number of days between analyst i's earnings forecast date and the actual
earnings announcement date for firm j in year t;

MFREQijct = Mean-adjusted number of distinct earnings forecasts made by analyst i for firm j in year
t;

MFEXPijct = Mean-adjusted number of years for which analyst i has supplied at least one earnings
forecast for firm j, prior to year t;

MGEXPit = Mean-adjusted number of years for which analyst i has supplied at least one earnings
forecast for any firm, prior to year t;

DTOP10it = 1 if analyst i is employed by a brokerage house in the top size decile during year t, and 0
otherwise. Size deciles are based on the number of unique analysts employed in year t;

MNCOSit = Mean-adjusted number of distinct firms for which analyst i makes at least one earnings
forecast during year t;

MNSIC2it = Mean-adjusted number of distinct industries (based on two-digit SIC codes) for which
analyst i makes at least one earnings forecast during year t;

Countryc = Country fixed effects;

Yeart = Year fixed effects.

To test Hypothesis 1 as to whether the relation between the provision of analyst cash flow
forecasts (CFFijct) and analyst earnings forecast accuracy (MAFEijct) changes after the adoption of
IFRS, we follow prior studies (e.g., DeFond et al., 2007; Demmer et al., 2019; Landsman et al.,
2012) and use a difference-in-differences research design. Prior studies that focus on the mandatory
adoption of IFRS in the European Union, which has the same adoption year of 2005, use the firms
from non-adoption countries as control firms. In those studies, there are two time periods (Pre- and
Post-adoption) and two groups (i.e., adoption countries and non-adoption countries), the standard
2
difference-in-differences model can estimate the average treatment effect for the adoption. However,
with more and more countries adopting IFRS over time in our sample period, the standard
difference-in-differences model based on single adoption period is not applicable. Therefore, we
follow prior economic research stud- ies (e.g., Bertrand & Schoar, 2003; Wolfers, 2006) and use the
“two-way fixed effects” regression model. Specifically, we build on the following two-way fixed
effects model:

Yict = α + μIFRSc,t + Countryc + Yeart + ∈ict (2)

c t

The coefficient γ captures the average change in the outcome attributable to the adoption of IFRS.
There are two features regarding the IFRS adoption that affects the way we define the measure of the
IFRS dummy. First, not all companies adopted IFRS in the earliest mandatory adoption period as
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some firms exploited definitions, exemptions, and deferrals to avoid adopting IFRS and others
simply failed to comply with the regulation (Pownall & Wieczynska, 2018). Second, some
companies volun- tarily adopted IFRS either prior to the mandatory adoption or in countries that
IFRS adoption is not required. In light of these two features, we construct the measure of IFRSict
based on the accounting standard that a firm has used over the sample period. Specifically, if a firm
uses the local accounting standard in the previous year and switches to the IAS/IFRS in the current
year and maintains it in the following years, IFRSict takes the value of 1 in the switch year and
following years, and 0 in the years prior to the switch year. For firms that never switched from local
accounting standards to IAS/IFRS, IFRSict takes the value of 0 throughout the sample period. Firms
that voluntarily adopted IFRS have different reporting incentives (e.g., Daske et al., 2013).
Therefore, we exclude firms that voluntarily adopted IFRS. We use the variable ACCTSTD from
3
Compustat Global and follow Daske et al. (2013) when coding a firm's accounting standard.
To test Hypothesis 1, we specify the model as follows.

MAFEijct = α + þ1CFFijct + þ2IFRSict + þ3CFFijct × IFRSict + þ4LMAFEijct + þ5MAGEijct

+þ6MFREQijct + þ7MFEXPijct + þ8MGEXPit + þ9DTOP10it + (3)
þ10MNCOSit , ,
+þ11MNSIC2it + Countryc Yeart + sijct
t
+
c

We expect CFFijct × IFRSict in Model (3) to be negative and significant to support Hypothesis 1.
To test Hypothesis 2a and Hypothesis 2b, we include the three-way-interaction term,
CFFijct × IFRSict×LEGALc, as our key variable of interest in the following model:
MAFEijct = α + þ1CFFijct + þ2IFRSict + þ3CFFijct × IFRSict + þ4LEGALc + þ5CFFijct × LEGALc
+þ6IFRSict × LEGALc + þ7CFFijct × IFRSict × LEGALc + þ8LMAFEijct
+þ9MAGEijct + þ10MFREQijct + þ11MFEXPijct + þ12MGEXPit + (4)
þ13DTOP10it , ,
+þ14MNCOSit + þ15MNSIC2it + Countryc Yeart + sijct
t
+
c

Where LEGALc = 1 when the country has a common law origin, and 0 when the country has a
code law origin.
We also include CFFijct × IFRSict×ENFc as our key variable of interest in the following model:
MAFEijct = α + þ1CFFijct + þ2IFRSict + þ3CFFijct × IFRSict + þ4ENFc + þ5CFFijct × ENFc
+þ6IFRSict × ENFc + þ7CFFijct × IFRSict × ENFc + þ8LMAFEijct
+þ9MAGEijct + þ10MFREQijct + þ11MFEXPijct + þ12MGEXPit (5)
, ,
+þ13DTOP10it + þ14MNCOSit + þ15MNSIC2it + Countryc + Yeart +

sijct
c t

Where ENFc = 1 for countries with strong legal enforcement, and 0 for countries with weak legal
enforcement. Our classification is based on the legal enforcement index, calculated as the average of
three legal enforcement variables reported in La Porta et al. (1998). The three variables are (1) effi-
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ciency of the judicial system, which assesses the efficiency and integrity of the legal environment
and is based on the average of 1980–1983 data from Business International Corp., (2) rule of law,
which assesses the rule and order tradition in a country and is based on the average of 1982–1995
data from International Country Risk, and (3) corruption, which assesses the corruption in
government. The
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index ranges from 0 to 10, with higher scores indicating greater law enforcement. To facilitate the
in- terpretation of the results, ENFc takes the value of 1 if the country's legal enforcement index is
above the median, and 0 otherwise.
We expect CFFijct × IFRSc,t × LEGALc in Model (4) and CFFijct × IFRSc,t × ENFc in Model (5)
to be negative (positive) and significant to support Hypothesis 2a (Hypothesis 2b).

5 | DATA AND SAMPLE

We first collect data from I/B/E/S Detail File for all international firms over January 1994 to
December 2018. Our sample period starts from 1994 because analysts’ cash flow forecasts started to
be avail- able in I/B/E/S from 1994. For our initial sample, we collect 5,624,432 individual analyst
earnings forecasts. We use the Daily Exchange Rate file from I/B/E/S database to translate
forecasted earnings per share and cash flow per share, as well as actual earnings per share and cash
flow per share from all currencies into U.S. dollars.
We then merge our initial sample with Compustat Global to collect the following variables. First,
we obtain SIC code (to calculate one of the explanatory variables, MNSIC2ijt). Second, we collect
country in which the firms, for which analysts provide earnings forecasts, are domiciled in (variable
name = LOC). Third, we collect the accounting standard the firm uses in presenting its financial
statements (variable name = ACCTSTD). Merging with Compustat Global reduced our sample to
3,866,675 analyst-firm-year observations. As we only keep the most recent earnings forecasts of
each analyst-year, we further reduce the sample to 1,375,627 analyst-firm-year observations (i.e.,
individ- ual analyst earnings forecasts), representing 55,787 distinct analysts forecasting for firms
domiciled in 85 countries/markets. We further deleted observations from countries/markets with
fewer than 100 observations. As such, our final international sample consists of 555,014
observations from 55 coun- tries/markets, of which, 178,445 observations are accompanied with
cash flow forecasts and 376,559 observations are not.
To be consistent with the tests using our international sample, we use the same sample period to
test the IFRS adoption effect. The sample period is relatively long around IFRS adoption. However,
we think this is relatively less of a concern for the following reasons. First, there are different waves
of mandatory adoptions in different countries and markets. As will be shown in Table 1, within our
sam- ple period, countries mandatorily adopted IFRS in different years ranging from 1998 to 2015.
Second, one of our research designs takes advantage of the staggering adoption of IFRS and
essentially uses the later adopters as the benchmark for earlier adopters and earlier adopters as the
benchmark for later adopters.
To test the impact of mandatory IFRS adoption, we delete firms that voluntarily adopted IFRS.
We identify the voluntary adopters based on the mandatory IFRS adoption status of the countries
that firms are domiciled in. For countries that did not mandatorily adopt IFRS, all IFRS adopters
are treated as voluntary adopters. For countries that mandatorily adopted IFRS, firms which adopted
IFRS prior to the mandatory adoption year are treated as voluntary adopters. Therefore, our sample
used to test Hypothesis 1 includes 475,197 observations. Legal origin (i.e., LEGALc) and
enforcement variables from La Porta et al. (1998) are only available for 41 countries/markets out of
55 countries/ markets. Thus, our sample to test Hypothesis 2a and Hypothesis 2b is restricted to
445,159 observa- tions from 41 countries/markets.
Panel A of Table 1 displays the sample distribution across countries/markets, whether countries/
markets have adopted IFRS (if yes, then the year of adoption becoming effective) or not, as well as
the legal origin and enforcement variables from La Porta et al. (1998). Our sample distribution
statistics
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T A B LE 1 Sample distribution. Panel A: Sample distribution across countries/markets and country/market's IFRS
adoption year as well as legal origin and enforcement. Panel B: Sample distribution across year

(Panel A) Country/ IFRS Legal Origin (i.e.,Enforcement

market No. of obs. Percentage Adoption LEGALc) (i.e., ENFc)

Japan 110,609 19.93 No 0 9.17

United Kingdom 54,610 9.84 2005 1 9.22
Germany 38,550 6.95 2005 0 9.05
France 36,713 6.61 2005 0 8.68
Australia 28,290 5.10 2005 1 9.51
China 26,709 4.81 No
Hong Kong 25,506 4.60 2005 1 8.91
Korea 19,330 3.48 2011 0 5.55
India 18,704 3.37 No 1 5.58
Malaysia 18,374 3.31 2012 1 7.72
Taiwan 17,151 3.09 2013 0 7.37
Italy 13,386 2.41 2005 0 7.07
Switzerland 13,216 2.38 2005 0 10
Netherlands 11,586 2.09 2005 0 10
Singapore 11,351 2.05 2003 1 8.93
Spain 11,240 2.03 2005 0 7.14
Finland 10,292 1.85 2005 0 10
Sweden 9,626 1.73 2005 0 10
Norway 7,030 1.27 2005 0 10
Thailand 6,778 1.22 No 1 4.89
South Africa 6,545 1.18 2005 1 6.45
Belgium 5,699 1.03 2005 0 9.44
Indonesia 4,963 0.89 No 0 2.88
Denmark 4,891 0.88 2005 0 10
Brazil 4,765 0.86 2010 0 6.13
Mexico 4,554 0.82 2012 0 5.37
Greece 3,848 0.69 2005 0 6.82
Austria 3,455 0.62 2005 0 9.36
Philippines (the) 3,386 0.61 2005 0 3.47
Poland 3,192 0.58 2005
New Zealand 3,144 0.57 2007 1 10
Chile 1,949 0.35 2009 0 6.52
Argentina 1,666 0.30 2012 0 5.79
Ireland 1,657 0.30 2005 1 8.36
Portugal 1,615 0.29 2005 0 7.19
Israel 1,168 0.21 2008 1 7.72
Hungary 1,062 0.19 No

(Continues)
 1 | WANG ANd

T A B LE 1 (Continued)

(Panel A) Country/ IFRS Legal Origin (i.e., Enforcement

market No. of obs. Percentage Adoption LEGALc) (i.e., ENFc)

Bermuda 1,015 0.18 No

Czechia 1,014 0.18 2005
Pakistan 882 0.16 2007 1 3.67
Luxembourg 637 0.11 2005
Egypt 611 0.11 No 0 4.85
Nigeria 575 0.10 2012 1
Qatar 532 0.10 2002
United Arab Emirates 471 0.08 2015
(the)
Papua New Guinea 456 0.08 1998
Sri Lanka 400 0.07 2012 1 4.63
Peru 391 0.07 2012 0 4.65
Russian Federation 268 0.05 2012
(the)
Kuwait 258 0.05 1990
Morocco 215 0.04 No
Slovenia 162 0.03 2005
Columbia 152 0.03 2015 0 4.78
Romania 137 0.02 2005
Kenya 124 0.02 1999 1 5.33
Croatia 104 0.02 No

(Panel B) Year No. of obs. Percentage

1995 11,586 2.09
1996 14,409 2.60
1997 19,012 3.43
1998 19,070 3.44
1999 20,307 3.66
2000 22,169 3.99
2001 20,828 3.75
2002 22,781 4.10
2003 21,428 3.86
2004 23,306 4.20
2005 23,206 4.18
2006 23,076 4.16
2007 23,494 4.23
2008 24,007 4.33
2009 23,881 4.30
2010 25,665 4.62

(Continues)
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TABLE 1 (Continued)

(Panel B) Year No. of obs. Percentage

2011 27,194 4.90

2012 27,109 4.88
2013 27,669 4.99
2014 27,848 5.02
2015 28,366 5.11
2016 26,934 4.85
2017 26,503 4.78
2018 25,166 4.53

include the numbers of observations as well as the percentages of the fifty-five countries/markets
that are covered in our sample. We list the countries/markets from the highest number of
observations (also percentage) to the lowest number of observations (also percentage). Observations
4
from Japan account for 19.93% of the sample. In Panel B, we provide number of observations and
percentage by year. Our sample distribution by year suggests that our sample is not concentrated in
certain years.
Table 2 compares the means and medians of key variables. In Panel A, we compare the means
and medians of raw values of explanatory variables. We provide p-values of t-statistics (z-statistics)
from our t tests (Wilcoxon tests) of mean (median) differences. Our tests of differences in means and
medi- ans for explanatory variables suggest that the analyst features are significantly different across
our two subsamples: with and without cash flow forecasts. Therefore, controlling for analyst
characteristics is necessary when comparing their earnings forecast accuracy.
In Panel B, we compare the means and medians of mean-adjusted values of explanatory variables
as well as our dependent variable. The mean of MAFEijct is 0.039 for our subsample of earnings fore-
casts accompanied with cash flow forecasts whereas the mean of MAFEijct is 0.022 for our subsample
of earnings forecasts without cash flow forecasts. The two-sample t test results suggest that the mean
of MAFEijct for the subsample with cash flow forecasts is significantly larger than that for the sub-
sample without cash flow forecasts. The median of MAFEijct is 0.216 for our subsample of earnings
forecasts accompanied with cash flow forecasts whereas the median of MAFEijct is 0.185 for our sub-
sample of earnings forecasts without cash flow forecasts. The Wilcoxon test results suggest that the
median of MAFEijct is significantly larger for our subsample with cash flow forecasts. Taken together,
our univariate tests provide preliminary evidence on the higher accuracy of earnings forecasts when
cash flow forecasts are provided. In the next section, we provide regression results that control for
analyst characteristics and firm characteristics that might affect the accuracy of earnings forecasts.

6 | EMPIRICAL RESULTS

In Table 3, we present the verification of Call et al. (2009) with our large international sample of
555,014 forecast-level observations. The t-statistics are robust and clustered at the analyst level.
The estimated coefficient on CFFijct is positive and significant (coefficient estimate = 0.0099, t-
statistic = 2.93), suggesting a positive association between the provisions of cash flow forecasts and
earnings forecast accuracy in an international setting. Therefore, our international results are con-
sistent with Call et al. (2009)’s finding in the United States that earnings forecasts supplemented
with cash flow forecasts are more accurate than those without cash flow forecasts. The estimated
 1 | WANG ANd

TABLE 2 Summary statistics of key variables. Panel A: Mean and median differences of raw values of variables.
Panel B: Mean and median differences of mean-adjusted values of variables

Difference in Difference in
means medians
Mean Mean (p-value from Median Median (p-value from
(Panel A) CFFijct = 1 CFFijct = 0 t test) CFFijct = 1 CFFijct = 0 Wilcoxon test)
AFEjct 0.681 13.635 <0.001 0.060 0.039 <0.001
AGEjct 115.386 123.898 <0.001 90.000 95.000 <0.001
FREQjct 3.704 3.240 <0.001 3.000 3.000 <0.001
FEXPjct 3.510 3.321 <0.001 2.000 2.000 <0.001
GEXPjct 6.832 6.191 <0.001 6.000 5.000 <0.001
DTOP10t 0.662 0.583 <0.001 1.000 1.000 <0.001
NCOSit 8.450 9.908 <0.001 7.000 7.000 <0.001
NSIC2it 3.681 3.820 <0.001 3.000 3.000 <0.001
N 178,455 376,559 178,455 376,559

Difference in Difference in
means medians
Mean Mean (p-value from Median Median (p-value from
(Panel B) CFFijct = 1 CFFijct = 0 t test) CFFijct = 1 CFFijct = 0 Wilcoxon test)
MAFEijct 0.039 0.022 <0.001 0.216 0.186 <0.001
MAGEijct −0.087 −0.062 <0.001 −0.215 −0.192 <0.001
MFREQijct 0.103 0.069 <0.001 0.000 0.000 <0.001
MFEXPijct 0.440 0.473 <0.001 0.227 0.263 <0.001
MGEXPit 0.141 0.149 <0.001 0.076 0.081 <0.001
DTOP10it 0.662 0.583 <0.001 1.000 1.000 <0.001
MNCOSit −0.004 0.043 <0.001 −0.065 −0.052 <0.001
MNSIC2it −0.019 0.030 <0.001 −0.091 −0.088 <0.001
N 178,455 376,559 178,455 376,559
Note: Variables are defined in Appendix 1.

coefficients on LMAFEijct, MAGEijct, MFREQijct, DTOP10it, and MNSIC2it are all significant in the
predicted signs. The estimated coefficients on MFEXPijct and MGEXPit are not significant, suggesting
that neither analysts’ firm-specific experience nor their general experience significantly affects their
earnings forecast accuracy in our international setting. The estimated coefficient on MNCOSit is posi-
5
tive, which is contrary to our prediction, although significant at the 0.10 level.
In Table 4, we provide Model (3) results of testing Hypothesis 1. In the first three columns,
the estimated coefficient on CFFijt is positive and significant (coefficient estimate = 0.0165, t-
statistic = 4.33), suggesting a positive association between the provisions of cash flow forecasts and
earnings forecast accuracy before IFRS adoption. The estimated coefficient on CFFijct × IFRSict is
−0.0295 with a t-statistic of −3.82. This result suggests that the effect of cash flow forecast issuance
on earnings forecast accuracy is weaker after IFRS adoption. Taken together, our findings support
Hypothesis 1 that the adoption of IFRS reduces the advantages of forecasting cash flows in terms of
improving analysts’ own earnings forecasts.
In our sample, countries adopted IFRS in different years. In addition, some firms defer the adop-
tions after the mandatory adoption years (Pownall & Wieczynska, 2018). We take into consideration
 WANG ANd YU
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T A B LE 3 Regression results of Model (1): Based on pooled sample

MAFEijct = a + þ 1 CFFijct + þ2 LMAFEijct + þ3 MAGEijct + þ4 MFREQ

it
ijct + þ 5 MFEXPijct

c cttijct
+þ6 MGEXP+it +
∑ þCountry + ∑ Year + c
7 DTOP10it + þ8 MNCOSit + þ9 MNSIC2
p-
Predicted sign Coefficient t-value value
Intercept −0.0112 −0.33 0.7398
CFFijct + 0.0099*** 2.93 0.0034
LMAFEijct + 0.1157*** 21.85 0.0000
MAGEijct - −0.2554*** −18.93 0.0000
MFREQijct + 0.0584*** 7.43 0.0000
MFEXPijct + 0.0029** 1.97 0.0489
MGEXPit + 0.0015 0.58 0.5620
DTOP10it + 0.0120*** 3.43 0.0006
MNCOSit - 0.0150*** 3.52 0.0004
MNSIC2it - −0.0146*** −3.22 0.0013
Country fixed effect Yes
Year fixed effect Yes
Adjusted R2 7.62%
No. of observations 555,014
Note: Variables are defined in Appendix 1. *, **, *** indicate significance level of 10%, 5%, and 1%, respectively.

these two features and only include the firms that adopted IFRS at some point in the sample period.
This research design takes advantage of the staggering adoption of IFRS and uses the later adopters
as the benchmark for earlier adopters and earlier adopters as the benchmark for later adopters. We
report these results in the last three columns of Table 4. The estimated coefficient on CFFijct is
0.0392 with a t-statistic of 5.47. More importantly, the estimated coefficient on CFFijct × IFRSict is
−0.0498 with a t-statistic of −5.15. Therefore, our results using the subsample excluding non-
adopters of IFRS are qualitatively similar to our full sample results.
In the first three columns of Table 5, we present results regarding Hypothesis 2a and Hypothesis
2b with our full sample. Panel A provides the results using legal origin (i.e., LEGALc) as the
country-level variable. The estimated coefficient on CFFijt is positive and significant (coefficient
estimate = 0.0093, t-statistic = 1.95), suggesting a positive association between the provisions of
cash flow forecasts and earnings forecast accuracy before IFRS adoption for firms in code law
countries. The esti- mated coefficient on CFFijct × LEGALc is positive and significant (coefficient
estimate = 0.0172, t-statistic = 2.09), suggesting that, before IFRS adoption, the positive association
between the pro- visions of cash flow forecasts and earnings forecast accuracy is stronger for firms
in common law countries.
Results regarding Hypothesis 2a and Hypothesis 2b are as follows. The estimated coefficient on
CFFijct × IFRSict is −0.0097 but not statistically significant (t-statistic = −1.01), suggesting that IFRS
adoption does not impact the benefit of cash flow forecast issuance for analysts’ earnings forecast
accuracy in code law countries. The estimated coefficient on CFFijct × IFRSict×LEGALc is −0.0467
and is statistically significant (t-statistic = −2.94), suggesting that the impact of IFRS adoption on
the association between issuing cash flow forecasts and analysts’ earnings forecast accuracy is only
 1 | WANG ANd

T A B LE 4 Regression results of Model (3): Tests of Hypothesis 1

MAFEijct = a + þ1 CFFijct + þ 2 IFRSict + þ 3 CFFijct × IFRSict + þ 4 LMAFEijct + þ 5 MAGEijct

∑ ∑
11 itc cttijct
+þ6 MFREQ+ijct 2 +Country
+ þ7 MFEXP
þ MNSIC +Year it++cþ 9 DTOP10it + þ10 MNCOSit
ijct + þ 8 MGEXP
Subsample results (excluding non-adopters)
Full sample results

Predictedp-
sign Coefficient t-value p-value Coefficient t-value value
Intercept ? −0.0132 −0.39 0.6941 0.0039 0.19 0.8494
CFFijct + 0.0165*** 4.33 0.0000 0.0392*** 5.47 0.0000
IFRSict + 0.0087 1.61 0.1085 −0.0034 −0.31 0.7529
CFFijct × IFRSict - −0.0295*** −3.82 0.0001 −0.0498*** −5.15 0.0000
LMAFEijct + 0.1216*** 20.28 0.0000 0.1539*** 14.46 0.0000
MAGEijct - −0.2464*** −16.89 0.0000 −0.2146*** −19.77 0.0000
MFREQijct + 0.0623*** 7.25 0.0000 0.0464*** 6.50 0.0000
MFEXPijct + 0.0034** 2.22 0.0266 0.0022 0.91 0.3618
MGEXPit + −0.0006 −0.22 0.8237 −0.0001 −0.01 0.9882
DTOP10it + 0.0165*** 4.39 0.0000 0.0203*** 3.89 0.0001
MNCOSit - 0.0171*** 3.73 0.0002 0.0062 0.90 0.3687
MNSIC2it - −0.0166*** −3.35 0.0008 −0.0026 −0.38 0.7042
Country fixed Yes Yes
effect
Year fixed effect Yes Yes
Adjusted R2 7.58% 6.92%
No. of observations 475,197 205,901

Note: Variables are defined in Appendix 1. *, **, *** indicate significance level of 10%, 5%, and 1%, respectively.

significant in common law countries. These results suggest that the adoption of IFRS alone does not
drive the association but rather it is driven by IFRS in the context of the institutional setting. In other
words, the IFRS effect we find in Table 4 is only specific to common law countries, but not code law
countries.
In Panel B, we use enforcement (i.e., ENFc) as the country-level variable. The estimated
coefficient on CFFijt is positive and significant at the 0.05 level (coefficient estimate = 0.0080, t-
statistic = 1.33), suggesting an insignificant association between the provisions of cash flow
forecasts and earnings forecast accuracy for firms in code law countries before IFRS adoption. The
estimated coefficient on CFFijct × ENFc is positive and insignificant (coefficient estimate = 0.0106,
t-statistic = 1.36), suggesting that the positive association between the provisions of cash flow
forecasts and earnings forecast accuracy before IFRS adoption does not vary with the legal
enforcement across countries.
Results regarding Hypothesis 2b are as follows. The estimated coefficient on CFFijct × IFRSict is
−0.0051 with a t-statistic of −0.50. The estimated coefficient CFFijct × IFRSict×ENFc is −0.0431
with a t-statistic of −2.82. Therefore, we find results in Panel B similar to Panel A in that the
impact of
 WANG ANd YU
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T A B LE 5 Regression results of Models (4 and 5): Tests of Hypothesis 2. Panel A: Using legal origin
(i.e., LEGALc) as the country-level variable. Panel B: Using enforcement (i.e., ENFc) as the country-level variable
MAFEijct = a + þ1 CFFijct + þ2 IFRSict + þ3 CFFijct × IFRSict + þ4 LEGALc + þ5 CFFijct × LEGALc
+þ6 IFRSict × LEGALc + þ7 CFFijct × IFRSict × LEGALc + þ8 LMAFEijct
+þ9 MAGEijct + þ10 MFREQijct + þ11 MFEXPijct + þ12 MGEXPit + þ13 DTOP10it
∑ ∑
+þ14 MNCOS + þ MNSIC2 + Country + Year + c
it 15 it c c t t ijct

Subsample results (excluding

Full sample results non-adopters)
(Panel A) Coefficient t-value p-value Coefficient t-value p-value
Intercept 0.0021 0.19 0.8488 0.0062 0.37 0.7097
CFFijct 0.0093* 1.95 0.0517 0.0323*** 3.10 0.0019
IFRSict −0.0027 −0.38 0.7011 −0.0174 −1.40 0.1621
CFFijct × IFRSict −0.0097 −1.01 0.3104 −0.0307** −2.32 0.0204
LEGALc −0.0047 −0.32 0.7462 −0.0076 −0.40 0.6881
CFFijct × LEGALc 0.0172** 2.09 0.0363 0.0127 0.92 0.3602
IFRSict × LEGALc 0.0231** 2.40 0.0163 0.0274** 2.30 0.0214
CFFijct × IFRSict×LEGALc −0.0467*** −2.94 0.0032 −0.0416** −2.18 0.0290
LMAFEijct 0.1245*** 19.91 0.0000 0.1536*** 14.31 0.0000
MAGEijct −0.2436*** −16.30 0.0000 −0.2134*** −19.57 0.0000
MFREQijct 0.0607*** 6.83 0.0000 0.0472*** 6.60 0.0000
MFEXPijct 0.0036** 2.20 0.0278 0.0015 0.65 0.5178
MGEXPit −0.0001 −0.02 0.9816 0.0015 0.36 0.7152
DTOP10it 0.0159*** 4.07 0.0000 0.0196*** 3.73 0.0002
MNCOSit 0.0147*** 3.07 0.0022 0.0060 0.86 0.3900
MNSIC2it −0.0157*** −3.02 0.0026 −0.0035 −0.50 0.6165
Country fixed effect Yes Yes
Year fixed effect Yes Yes
2
Adjusted R 7.53% 6.90%
No. of observations 445,159 203,616
MAFEijct = a + þ1 CFFijct + þ2 IFRSict + þ 3 CFFijct × IFRSict + þ4 ENFc + þ5 CFFijct ×
ENFc
+þ6 IFRSict × ENFc + þ7 CFFijct × IFRSict × ENFc + þ8 LMAFEijct
∑ ∑
þ9þMAGE
++ 13 DTOP10
þ10þ MFREQ
ijct + + MNCOS + þ11 MNSIC2
ijct + MFEXPijct++ þ12 MGEXP
Country +it Year + c
it 14 it 15 it c c t t ijct

Full sample results Subsample results (excluding non-adopters)

(Panel B) Coefficient t-value p-value Coefficient t-value p-value

Intercept 0.0047 0.35 0.7239 0.0064 0.31 0.7563
CFFijct 0.0080 1.33 0.1842 0.0329*** 3.28 0.0010
IFRSict −0.0015 −0.22 0.8229 −0.0101 −0.85 0.3970
CFFijct × IFRSict −0.0051 −0.50 0.6172 −0.0276** −2.16 0.0311
ENFc −0.0549*** −3.55 0.0004 −0.0444** −2.28 0.0226

(Continues)
 1 | WANG ANd

T A B LE 5 (Continued)
MAFEijct = a + þ1 CFFijct + þ2 IFRSict + þ3 CFFijct × IFRSict + þ4 ENFc + þ5 CFFijct × ENFc
+þ6 IFRSict × ENFc + þ7 CFFijct × IFRSict × ENFc + þ8 LMAFEijct
+þ9 MAGEijct + þ10 MFREQijct + þ11 MFEXPijct + þ12 MGEXPit
∑ ∑
+þ13 DTOP10 + þ MNCOS + þ MNSIC2 + Country + Year + c
it 14 it 15 it c c t t ijct

Full sample results Subsample results (excluding non-adopters)

(Panel B) Coefficient t-value p-value Coefficient t-value p-value

CFFijct × ENFc 0.0106 1.36 0.1739 0.0136 0.97 0.3310
IFRSict × ENFc 0.0185* 1.86 0.0626 0.0164 1.35 0.1771
CFFijct× IFRSict×ENFc −0.0431*** −2.82 0.0048 −0.0459** −2.47 0.0136
LMAFEijct 0.1245*** 19.92 0.0000 0.1535*** 14.32 0.0000
MAGEijct −0.2436*** −16.30 0.0000 −0.2134*** −19.56 0.0000
MFREQijct 0.0607*** 6.83 0.0000 0.0472*** 6.59 0.0000
MFEXPijct 0.0036** 2.21 0.0274 0.0016 0.69 0.4918
MGEXPit −0.0001 −0.03 0.9757 0.0015 0.35 0.7277
DTOP10it 0.0160*** 4.10 0.0000 0.0195*** 3.71 0.0002
MNCOSit 0.0146*** 3.06 0.0022 0.0059 0.84 0.4012
MNSIC2it −0.0156*** −3.01 0.0026 −0.0035 −0.49 0.6242
Country fixed effect Yes Yes
Year fixed effect Yes Yes
2
Adjusted R 7.53% 6.90%
No. of observations 445,159 203,616
Note: Variables are defined in Appendix 1. *, **, *** indicate significance level of 10%, 5%, and 1%, respectively.

IFRS adoption on the association between cash flow forecast issuance and earnings forecast
accuracy only exists in countries with strong legal enforcement.
In the last columns of Table 5 Panel A and Panel B, we report the results of Model (4) and Model
(5) using the subsample excluding non-adopters of IFRS. We have 203,616 observations in both
mod- els. In Model (4), the estimated coefficient on CFFijct × IFRSict is −0.0307 with a t-statistic of
−2.32. More importantly, the estimated coefficient on CFFijct × IFRSict×LEGALc is −0.0416 with a t-
statistic of −2.18. In Model (5), the estimated coefficient on CFFijct × IFRSict is −0.0276 with a t-
statistic of
−2.16. And the estimated coefficient on CFFijct × IFRSict×ENFc is −0.0459 with a t-statistic of
−2.47. In support of Hypothesis 2a, these findings are consistent with that IFRS reduces the benefit
of fore- casting cash flows in code law and weak enforcement countries, but this reduction is more
pronounced in common law and strong enforcement countries.
Although the results with the full sample show that the IFRS effect only exists in common law
and strong enforcement countries, the results with the removal of non-adopters demonstrate that
IFRS effect exists in code law and weak enforcement countries, with a stronger effect in common
law and strong enforcement countries. Therefore, our results in Table 5 support Hypothesis 2a
(instead of Hypothesis 2b) that the impact of IFRS adoption on the association between cash flow
forecast provi- sions and earnings forecast accuracy is significant in common law countries and
countries with strong legal enforcement relative to code law countries and countries with weak legal
enforcement.
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7 | CONCLUSIONS

In this paper, we examine whether cash flow forecasts improve analysts’ own earnings forecasts in
an international setting. Our large international sample results corroborate the U.S. finding that the
issu- ance of cash flow forecasts is positively associated with earnings forecast accuracy of those
analysts. In other words, earnings forecast accuracy is significantly higher for those forecasts
accompanied with cash flow forecasts, relative to those not accompanied with cash flow forecasts.
More impor- tantly, we document that the association between cash flow forecast provisions and
earnings forecast accuracy is weaker after IFRS adoption. Therefore, forecasting cash flow is not as
useful to analysts’ own earnings prediction in the presence of more and higher quality firm-specific
information after mandatory IFRS adoption. Furthermore, we find that the reduced usefulness of
forecasting cash flow for analysts’ own earnings prediction after mandatory IFRS adoption is more
pronounced in countries with a common law origin and strong legal enforcement as opposed to
countries with a code law ori- gin and weak legal enforcement.

ACKNOWLEDGEMENTS
We thank Dr. Grace Pownall and an anonymous reviewer for their insightful comments. This paper
was presented at American Accounting Association 2020 annual virtual meeting. We benefited from
the helpful discussions offered by Dr. Cristi Gleason as well as other conference participants.

ENDNOTES
1
In our main tests, we follow Call et al. (2009) and only include the most recent earnings forecasts (and cash flow
forecasts if cash flow forecasts are also provided on that day) and remove all other individual forecasts. Therefore,
our results may only reflect the increased accuracy of the most recent earnings forecasts, due to the provisions of
cash flow forecasts, but not all earnings forecasts.
2
With the single adoption year, the standard difference-in-differences model can estimate the average treatment effect
for the adoption by comparing the average change in outcomes experienced by the observations in adoption coun-
tries to the average change in outcomes experienced by the observations from non-adoption countries. Yict = α +
γAdoptc + λPostt + δ(Adoptc × Postt) + ϵict. Where Adoptc = a dummy variable which is equal to 1 if the observation
is from the adoption countries; Postt = a dummy variable which is equal to 1 in the time period after the adoption.
In a two-period model, the difference in differences estimate is δ, which is the same as [(α + γ + λ + δ – (α + γ)) -
(α + λ
- α)] and estimate the average treatment effect for the adoption.
3
We code firm-year observations as IAS if ACCTSTD takes the value of “DA,” “DI,” or “DT,” as U.S. GAAP if
ACCTSTD takes the value of “DU,” “MU,” or “US,” as Local if ACCTSTD takes the value of “DD,” “DO,” “DR,”
“DS,” “MI,” or “ND”.
4
To rule out the concern that our results are driven by certain countries, we remove observations from Japan and con-
duct a sensitivity test. Our regression results in all the tables continue to hold.
5
In Call et al. (2009), DTOP10it, and MNSIC2it are insignificant. In addition, MNCOSit is insignificant.

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How to cite this article: Wang C, Yu M. The impact of forecasting cash flows on enhancing analysts’ own ear
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APPENDIX 1

Variable definitions

Earnings forecast accuracy, calculated as the negative value of analyst i's absolute forecast error for firm
AFE
AGEijct Number of days between analyst i's earnings forecast date and the actual earnings
announcement date for firm j of country c in year t.
FREQijct Number of distinct earnings forecasts made by analyst i for firm j of country c in year t.

FEXPijct Number of years for which analyst i has supplied at least one earnings forecast for firm j of
country c, prior to year t.
GEXPit Number of years for which analyst i has supplied at least one earnings forecast for any firm, prior to year t.

NCOSit Number of distinct firms for which analyst i makes at least one earnings forecast during year t.
NSICit Number of distinct industries (based on two-digit SIC codes) for which analyst i makes at least one earning

MAFEijct Mean-adjusted earnings forecast accuracy, calculated as the negative value of analyst i's
absolute forecast error for firm j of country c in year t minus mean absolute forecast error
across all analysts following firms in year t.
CFFijct Equals 1 if analyst i issues both cash flow and earnings forecasts for firm j of country c in year t, and 0 if an

LMAFEijct One period lagged mean-adjusted earnings forecast error.

MAGEijct Mean-adjusted number of days between analyst i's earnings forecast date and the actual earnings announcem

MFREQijct Mean-adjusted number of distinct earnings forecasts made by analyst i for firm j of country c in
year t.
MFEXPijct Mean-adjusted number of years for which analyst i has supplied at least one earnings forecast for firm j of c

MGEXPit Mean-adjusted number of years for which analyst i has supplied at least one earnings forecast
for any firm, prior to year t.
DTOP10it Equals 1 if analyst i is employed by a brokerage house in the top size decile during year t, and 0 otherwise.

MNCOSit Mean-adjusted number of distinct firms for which analyst i makes at least one earnings forecast
during year t.
MNSICit Mean-adjusted number of distinct industries (based on two-digit SIC codes) for which analyst i
makes at least one earnings forecast during year t.
IFRSict It is measured according to a firm's use of accounting standard over the sample period. If a firm
uses the local accounting standards in the previous year and switches to the IAS/IFRS in the
current year and maintains it in the following years, it takes the value of 1 in the switch year
and following years, and 0 in the years prior to the switch year. For firms that never switched
from local accounting standards to IAS/IFRS, it takes the value of 0 throughout the sample
period.
LEGALc Equals 1 when the country has a common law origin, and 0 when the country has a code law origin.
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Earnings forecast accuracy, calculated as the negative value of analyst i's absolute forecast error for fi
AFE
ENFc Equals 1 for countries with strong legal enforcement, and 0 for countries with weak legal
enforcement. Our classification is based on the legal enforcement index, calculated as the
average of three legal enforcement variables reported in La Porta et al. (1998). The three
variables are (1) efficiency of the judicial system, which assesses the efficiency and integrity
of the legal environment and is based on the average of 1980–1983 data from Business
International Corp., (2) rule of law, which assesses the rule and order tradition in a country
and is based on the average of 1982–1995 data from International Country Risk, and (3)
corruption, which assesses the corruption in government. The index ranges from 0 to 10, with
higher scores indicating greater law enforcement, based on the average of 1982–1995 data
from International Country Risk. To facilitate the interpretation of the results, ENFc takes the
value of 1 if the country's legal enforcement index is above the median, and 0 otherwise.