High-technology intangibles and analysts' forecasts

This studY examines the association between firms' intangible asset, and properties of the information contained in analyst's earnings forecasts. We hy pothesize that analysts will supplement firms' financial information by placing greater relative emphasis oil their own private (or idiosyncratic) information which deriving their earnings forecasts for firths with significant intangible assets. Our evidence is consistent with this hypothesis. We find that the consensus in analysts' forecasts, measured as the correlation in analysts' forecast errors, is negatively associated with a firm's level of intangible assets. This result is robust to controlling for analyst uncertainty about a firm's future earnings, which we also find to be higher for firms with high levels of internally generated (arid expensed) intangibles. Given that analyst uncertainty increases and analyst consensus decreases with the level of a firm's intangible assets, we also expect and find that tire degree to Which the mean forecast aggregates private information and is more accurate than all individual analyst's forecast increases with a firm's intangible assets. Finally, additional analysis reveals that low-et levels of analyst consensus are associated with High-technology manufacturing companies. and that this association is explained by the relatively high R&D expenditure"s made by these firms. Overall, our results are consistent with financial analysts augmenting the financial reporting systems of firms with higher levels of intangible assets (in terms of contributing to more accurate earnings expectations), particularly R&D-driven high-tech manufacturers.