Analyst target price accuracy and the incidence of cash flow forecasts

Research shows that analyst target price accuracy is limited and yet evidence on the factors driving this limited accuracy is inconclusive. Complementing the results of recent studies that show that the increasing incidence of cash flow forecasts in analyst reports has helped mitigate accruals mispricing, we address the question: are analyst target prices more accurate when accompanied by cash flow forecasts than when they are not? Using propensity score matching to control for selection bias, we estimate the effect of disclosing cash flow forecasts on the target price accuracy of US stocks during 2000–2010. The results suggest that target prices are more accurate when analysts also disclose cash flow forecasts. The paper contributes to the continuing debate about the usefulness of analyst target prices as well as the usefulness of analyst cash flow forecasts