Publication Type

Journal Article

Publication Date

4-2016

Abstract

We investigate whether and how the complexity of derivatives influences analysts earnings forecast properties. Using a difference-in-differences design, we find that, relative to a matched control sample of non-users, analysts earnings forecasts for new derivatives users are less accurate and more dispersed after derivatives initiation. These results do not appear to be driven by the economic complexity of derivatives, but rather the financial reporting of such economic complexity. Overall, despite their financial expertise, analysts routinely misjudge the earnings implications of firms derivatives activity. However, we find evidence that a series of derivatives accounting standards has helped analysts improve their forecasts over time.

Keywords

Derivatives, Economic complexity, Reporting complexity, Hedging, Sell-side analysts, Earnings forecast

Discipline

Accounting | Finance and Financial Management

Research Areas

Financial Intermediation and Information

Publication

Journal of Accounting and Economics

Volume

61

Issue

2-3

First Page

584

Last Page

604

ISSN

0165-4101

Identifier

10.1016/j.jacceco.2015.07.005

Publisher

Elsevier

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://dx.doi.org/10.1016/j.jacceco.2015.07.005

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