Publication Type
Journal Article
Version
acceptedVersion
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
Citation
CHANG, Hye Sun; Donohoe, Michael; and Sougiannis, Theodore.
Do Analysts Understand the Economic and Reporting Complexities of Derivatives?. (2016). Journal of Accounting and Economics. 61, (2-3), 584-604.
Available at: https://ink.library.smu.edu.sg/soa_research/1507
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jacceco.2015.07.005