| Variations in the financial reporting environment can have effects on both preparers and users of financial statements. Such variations are more pronounced across countries than within countries. Firms also vary significantly in their disclosure practices, both within and across countries. This dissertation employs a cross-country design to investigate the relation between variations in financial reporting environments and disclosure practices and analysts' forecasts. Specifically, I examine the associations between sell-side financial analysts' earnings forecast accuracy and dispersion and variations in three elements of the financial reporting infrastructure: (1) flexibility in domestic accounting standards, (2) accrual accounting prescribed in accounting standards, (3) enforcement of accounting standards, as well as (4) firms' disclosure practices as measured by their disclosures in annual reports.; Controlling for firm- and country-level factors, I document that firm-level annual report disclosures are positively (negatively) related to earnings forecast accuracy (dispersion), suggesting that such disclosures provide useful information to analysts.; Flexibility in accounting standards is associated with lower (higher) forecast accuracy (dispersion). This finding is consistent with managers using flexibility for purposes other than to provide information for analysts and investors, and/or analysts' performances suffering from the increased task complexity. The degree of prescribed accrual accounting is positively correlated with forecast accuracy, consistent both with accruals providing useful information and with the smoothing function of accruals. A high level of enforcement of accounting standards is associated with lower forecast dispersion, suggesting that enforcement encourages managers to follow prescribed rules, which, in turn, reduces analyst uncertainty. These findings hold when jointly testing forecast properties and the level of annual report disclosures in a simultaneous equations test.; I also examine the relation between a particular type of annual report disclosures: disclosures about accounting policies, and analysts' forecast accuracy and dispersion. Despite the view by standard setters that these disclosures are essential, there has been limited prior research on accounting policy disclosures. I find that the level of accounting policy disclosures is significantly positively related to forecast accuracy and negatively related to dispersion (even after considering all other annual report information), consistent with the view that such disclosures are important to users of financial statements and reduce uncertainty about forecasted earnings. |
