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Prior literature suggests analysts have a very poor understanding of asymmetric cost behaviour ('ACB') and 'converge to the average' when incorporating this behaviour in forecasts. However, we show that the extent of bias arising from sticky costs is greater for firms ('Defenders') employing strategic approaches for which ACB is less commonly observed, and that ACB typically has no association with forecast errors for firms who typically demonstrate high degrees of cost stickiness ('Prospectors'). Our findings are consistent with analysts having a meaningful understanding of ACB and cross‐sectional differences in the likelihood of its incidence. [ABSTRACT FROM AUTHOR]

We find that a composite implied cost of capital (ICC) estimate – based on the earnings forecasts generated by cross‐sectional models – is highly correlated with future realised returns in both portfolio‐ and regression‐based tests. By contrast, we find very little evidence for an association with future realised returns for an ICC estimate based on analyst earnings forecasts. We also document the time‐varying nature of expected returns and risk premia, and provide up‐to‐date estimates of an implied Australian market risk premium. [ABSTRACT FROM AUTHOR]

We construct a measure of the speed with which forecasts issued by sell‐side analysts accurately forecast future annual earnings. Following Marshall, we label this measure earnings information flow timeliness (EIFT). This measure avoids the aggregation problem inherent in price‐based measures of information efficiency. We document large variation in EIFT across firm‐years, and show that EIFT is positively associated with the extent of analyst following, consistent with increased analyst coverage improving the speed with which earnings‐related information is recognised. We also find that EIFT is higher for firm‐years classified as 'bad news' (i.e., where analysts' forecasts at the start of the financial period exceed the reported outcome). However, when we separately consider instances where analysts appear to forecast non‐GAAP (or 'street') earnings rather than GAAP earnings, we find that the greater timeliness of bad news is concentrated among observations where analysts forecast non‐GAAP earnings, where unusual items are typically excluded. We conclude that the market for accounting information is more efficient for negative operating outcomes than for negative outcomes reflecting unusual items. [ABSTRACT FROM AUTHOR]

We examine the hierarchy of earnings benchmarks in Australia. Our results demonstrate a disconnect between the actions managers appear to take and the market reaction to firms exceeding or just missing earnings benchmarks. The actions of managers appear consistent with them acting in a manner to avoid making losses and earnings decreases. On the other hand, the market reacts in a manner where the analysts' earnings forecast is at the top of the earnings benchmark hierarchy. However, for firms without analyst coverage, the reporting of positive earnings is the predominant earnings benchmark. [ABSTRACT FROM AUTHOR]

We investigate IFRS non- GAAP earnings adjustments for fair value remeasurements made by companies and analysts and the usefulness of these disclosures for analysts. Examining Australian listed ( ASX 200) companies during 2008-2010 (576 firm-years), we find that companies disclosing non- GAAP earnings are more likely to have a higher incidence and magnitude of profit or loss items reflecting asset remeasurements and impairment in their financial statements. We find non- GAAP disclosing companies are more likely to have analyst adjustments to earnings for these items and lower forecast error and dispersion in the following year, suggesting usefulness rather than opportunism in the adjustments. [ABSTRACT FROM AUTHOR]

We study the relationship between investor relations disclosure and analyst forecast properties in Australian firms, a setting dominated by small firms with limited analyst coverage and requiring continuous disclosure of price sensitive information. We find increasing disclosure in the time period investigated is associated with greater accuracy in firms disclosing fewer items. Disclosure was unrelated to forecast dispersion, possibly due to the low analyst following. In periods of uncertainty, the investor relations awards effectively discriminated quality from quantity of disclosure. These findings highlight the importance of active communication with analysts, particularly in firms providing less disclosure and during periods of uncertainty. [ABSTRACT FROM AUTHOR]

This paper examines whether the 'external governance' imposed by comparative financial accounting standards reduces the trading advantage of insiders. We do this by directly comparing insider trading returns and insider's ability to predict future earnings from accruals in Spain and Australia. Results show higher excess returns and greater prediction of future earnings from conditioned insider trading in Australia that is then utilized by financial analysts to lower forecast errors - particularly in contrarian-based accruals trading. Possible explanations include: (i) a high asymmetric quality for market-based accruals, (ii) information transfer from informed insiders to uninformed insiders and financial analysts and (iii) a more timely dissemination of financial information in Spain through different ownership and governance structures. [ABSTRACT FROM AUTHOR]