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Valuation uncertainty and analysts' use of DCF models.

Authors :
Huang, Shengzhong
Tan, Hongping
Wang, Xiongyuan
Yu, Changqiu
Source :
Review of Accounting Studies; Jun2023, Vol. 28 Issue 2, p827-861, 35p, 8 Charts, 2 Graphs
Publication Year :
2023

Abstract

Using textual analysis for a large sample of analyst reports on U.S. firms, we find that analysts are more likely to use a discounted cash flow (DCF) model and to discuss more cash flow and discount rate information for firms with more uncertainty, as measured by earnings quality and firm risks. The market reactions to target price changes based on a DCF model are stronger, particularly for firms with greater valuation uncertainty and when the analysts present more cash flow and discount rate discussions. These results indicate that the analyst valuation process reflects investors' information demand under uncertainty and has a bearing on the informativeness of analyst research. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
13806653
Volume :
28
Issue :
2
Database :
Complementary Index
Journal :
Review of Accounting Studies
Publication Type :
Academic Journal
Accession number :
163943083
Full Text :
https://doi.org/10.1007/s11142-021-09658-w