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Research Collection School Of Accountancy

Future earnings response coefficient (FERC)

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Full-Text Articles in Business

Do Management Eps Forecasts Allow Returns To Reflect Future Earnings? Implications For The Continuation Of Management’S Quarterly Earnings Guidance, Jong-Hag Choi, Linda Myers, Yoonseok Zang, Dave Ziebart Mar 2011

Do Management Eps Forecasts Allow Returns To Reflect Future Earnings? Implications For The Continuation Of Management’S Quarterly Earnings Guidance, Jong-Hag Choi, Linda Myers, Yoonseok Zang, Dave Ziebart

Research Collection School Of Accountancy

Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether management earnings per share forecasts and their characteristics influence the future earnings response coefficient (FERC). We find that FERCs are greater for forecasting firms and when forecasts are more frequent or precise. We suggest that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we find that quarterly and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts; thus, even short-term, …


Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows And Earnings?, Steven F. Orpurt, Yoonseok Zang May 2009

Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows And Earnings?, Steven F. Orpurt, Yoonseok Zang

Research Collection School Of Accountancy

Motivated by recent FASB, IASB, and CFA Institute comments, we explore the predictive value of direct method cash flow disclosures. A primary stated purpose of the direct method is to better forecast future performance. To examine this purpose, we first document that direct method line items, such as cash received from customers, are not reliably estimable using income statements and either balance sheets or indirect method statements of cash flows. When these estimation (articulation) errors are included in cash flows and earnings forecasting models, forecasting performance significantly improves. In addition, employing a future ERC (FERC) methodology, we find evidence suggesting …


Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows And Earnings?, Steven Francis Orpurt, Yoonseok Zang Oct 2007

Do Direct Cash Flow Disclosures Help Predict Future Operating Cash Flows And Earnings?, Steven Francis Orpurt, Yoonseok Zang

Research Collection School Of Accountancy

Motivated by recent FASB, IASB and CFA Institute comments, we extend the scant literature on direct method cash flow disclosures by exploring their predictive ability. A primary stated purpose of the direct method is to better forecast future operating performance. To test this purpose, we use a FERC (future ERC) methodology, finding that firms voluntarily producing direct method statements reflect more information about future earnings in their current stock returns than other firms. Supporting our FERC analysis, we document that substantial articulation errors exist when direct method cash flow components are estimated from either indirect method cash flow statements or …