This study examines properties of analysts' cash flow forecasts and compares them to those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are less accurate than analysts' earnings forecasts and improve at a slower rate during the forecast period. Further, cash flow forecasts appear to be a nai¨ve extension of analysts' earnings forecasts, thus providing limited information on expected changes in working capital. We also find that analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock returns. Finally, estimating expected accruals as the difference between analysts' earnings forecasts and their cash flow forecasts does not result in a better detection of earnings management than achieved by commonly used accrual models.

We compare the quality of accounting numbers produced by two types of public firms—those with publicly traded equity and those with privately held equity that are nonetheless considered public by virtue of having publicly traded debt. We develop and test two hypotheses. The “demand” hypothesis holds that earnings of public equity firms are of higher quality than earnings of private equity firms due to stronger demand by shareholders and creditors for quality reporting. In contrast, the “opportunistic behavior” hypothesis posits that public equity firms, because their managers have a greater incentive to manage earnings, have lower earnings quality than their private equity peers. The results indicate that, consistent with the “opportunistic behavior” hypothesis, private equity firms have higher quality accruals and a lower propensity to manage income than public equity firms. We further find that public equity firms report more conservatively, in line with their greater litigation risk and agency costs.