I discuss the study by Call, Chen and Tong (2012) and focus on the information environment surrounding analysts. My discussion has two goals. First, I wish to put into perspective the findings of Call et al. (2012). Second, I hope to pave the road for future research on analysts, their cash flow forecasts and sophistication.

https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=2197525

Discussion of 'Are Analysts' Cash Flow Forecasts Naïve Extensions of Their Own Earnings Forecasts?'

In this article, we use post-Sarbanes–Oxley Act (SOX) restating sample companies to examine the effect of leverage on the probability of restatements. We also explore whether the level of board independence for restating firms has an impact on the probability of restatements. We further analyse the subsequent change of the firms’ executive compensation after they experience these restating events. The results indicate that firms with large debt have a high probability of restating their financial reports, but the likelihood of restatement is reduced if the underlying bankruptcy risk is lower. Contrary to expectations, the results do not indicate that board independence is associated with the probability of restatement. Even restating firms did not appear willing to fortify board independence after restatements. Finally, it is found that having more directors on the board for a company may help to restrain its executive compensation after restatements.

Board independence, executive compensation and restatement

Discussion of “Are Analysts' Cash Flow Forecasts Naïve Extensions of Their Own Earnings Forecasts?”†

The purpose of research is to investigate the accrual principles in Accounting that contained in the Company's Financial Statements. The accrual principle is reflected in the Balance Sheet and Income Statement. Accrual measurements in the Balance Sheet are measured using PersistenceCurrent Operating Accrual, Persistence Non-Current Operating Accrual. Idiosyncratic risk reflects the specific information about the company and it will fluctuate according to the information itself.To measure the idiosyncratic risk in this study five factors of Fama-French Model were used (Fama and French 2014). Asset Pricing Measurement uses the Dividend Disscounted Model to predict stock prices.The samples used in this study are listed below. The Manufacturing Company is selected with consideration for accrual measurement of accounts receivable, inventory, investment and liabilities. The sample was chosen by purposive random sampling method. The number of samples generated by this method is 145 companies with full reports for 2010-2015.Using the SEM AMOS Ver.24 and Sobel Test Path Analysis, the results show that Current Operating Accrual has a negative and significant relationship to the idiosyncratic risk and stock price. For non-Current Operating Accrual variables have positive and significant relation. By using Sobel Test, the test result shows that idiosyncratic risk has mediation effect in Persistence Current Operating Accrual, Non-Current Operating Accrual relationship to stock price.

/pdf/idiosyncratic-risk-in-emerging-market-sjgudapnpp.pdf

Idiosyncratic Risk in Emerging Market

The purpose of research is to investigate the accrual principles in Accounting that contained in the Company's Financial Statements. The accrual principle is reflected in the Balance Sheet and Income Statement. Accrual measurements in the Balance Sheet are measured using PersistenceCurrent Operating Accrual, Persistence Non-Current Operating Accrual. Idiosyncratic risk reflects the specific information about the company and it will fluctuate according to the information itself. To measure the idiosyncratic risk in this study five factors of Fama-French Model were used (Fama and French 2014). Asset Pricing Measurement uses the Dividend Discount Model to predict stock prices. 
The samples used in this study are listed below. The Manufacturing Company is selected with consideration for accrual measurement of accounts receivable, inventory, investment, and liabilities. The sample was chosen by purposive random sampling method. The number of samples generated by this method is 145 companies with full reports for 2010-2015. 
Using the SEM AMOS Ver.24 and Sobel Test-Path Analysis, the results show that Current Operating Accrual has a negative and significant relationship to the idiosyncratic risk and stock price. For non-current Operating Accrual, variables have a positive and significant relation. By using Sobel Test, the test result shows that idiosyncratic risk has mediation effect in Persistence Current Operating Accrual, Non-Current Operating Accrual relationship to stock price.

/pdf/idiosyncratic-risk-and-asset-pricing-138rl2p6ts.pdf

Idiosyncratic Risk And Asset Pricing

This paper first examines the effects of value relevance of earnings and incremental value relevance of cash flows on net external financing, net equity financing and net debt financing. The investors, in general, suffer beta risk and idiosyncratic risk of a firm. The former is the main determinant of risk premium, and the latter can be controlled by the manager. If the firm has better control of idiosyncratic risk, it implies the manager has larger influence on stock returns. Under control accruals, value relevance of earnings and incremental value relevance of cash flows, we also examine the effects of net external, net debt and net equity financings on idiosyncratic risk. To test whether the external financing policy of a firm is consistent with over-investment hypothesis, this study investigate the effects of net external, net debt and net equity financings on future stock returns under controlling for value relevance of earnings and cash flows. This paper further analyzes the relation between current idiosyncratic risk and future stock returns following financing activities. We find that external financing activities are positively related to value relevance of earnings but are unrelated to incremental value relevance of operating cash flows, and external financing is unrelated to value relevance of operating cash flows but is positively related to incremental value relevance of earnings. Moreover, debt financing is unrelated to value relevance of cash flows but is positively correlated to incremental value relevance of earnings, and equity financing is unrelated to value or incremental value relevance of earnings but is positively correlated to value relevance and incremental value relevance of cash flows. We also find that both value relevance of earnings and cash flows are positively correlated to idiosyncratic risk, and current idiosyncratic risk and equity financing are negatively correlated to future returns after controlling value relevance of earnings and cash flows.

Value Relevance, Idiosyncratic Risk, and External Financing Activities

This article investigates the relationship between management voluntary disclosures of cash flow forecasts and external financing policy, earnings management, earnings forecasts and executive stock option compensation. We find that management is more likely to issue cash flow forecasts when a firm has external financing needs or when a firm has more executive stock option compensation. However, management is less likely to disclose cash flow forecasts when a firm has more earnings management. Consistent with the prior research, we document that a firm with high dividend payout, large asset value and high profitability tends to disclose cash flow information to convey good news. Further, if analysts have released earning forecasts, management is likely to issue cash flow forecasts to complement those analyst earnings forecasts. If analysts release cash flow forecasts, management is less likely to disclose cash flow forecasts to avoid issuing repeat forecasts. Our results, therefore, suggest that different ...

Yi-Mien Lin

Papers

Value Relevance, Idiosyncratic Risk, and External Financing Activities

Financing policy, executive stock options and cash flow forecasts