Intangible Asset Productivity and Analyst Forecast Error
Asian Tax Journal Vol. 25 No. 1 (2024), pp. 9-32
Abstract
This study deals with intangible asset productivity and financial analysts’ forecast errors. It examines whether financial analysts’ forecast errors decrease as intangible asset productivity increases. Intangible asset productivity, measured according to the research of Clausen and Hirth(2016), refers to the degree to which intangible assets operate efficiently and significantly contribute to the firm’s profits. The financial analyst forecast error used as the dependent variable was calculated as the difference between the profit forecast and the actual forecast by financial analysts who follow the firm. The sample used in this study is firms listed on the KOSPI stock market from 2011 to 2022, and the final sample with all the data needed for analysis is 2,335 firm－years. As a result of the analysis, it was found that as intangible asset productivity increases, financial analysts’ forecast errors decrease. In particular, the effect of reducing forecast errors was strong in the section where overprediction errors occur. In other words, the higher the intangible asset productivity, the easier it is for financial analysts to analyze the firm, which reduces information risk. In particular, this means that the effect of reducing the risk of overprediction is more pronounced. According to the above results, this paper is expected to have the following contributions. First, we directly demonstrated that as the productivity of intangible assets increases, it becomes easier for financial analysts to make predictions for the firm in question, reducing forecast errors. In other words, it directly showed the information risk caused by intangible asset productivity through an actual observable variable called financial analyst forecast error. Next, it was shown that the higher the intangible asset productivity, the greater the effect of reducing the overprediction tendency among financial analysts’ forecast errors. Conversely, if the intangible asset productivity is low, it means that financial analysts are more likely to overpredict the firm, so market participants. This suggests that there is a need to be cautious when handling such firm information. Lastly, for agencies in charge of capital market regulation, it can be used as a basis for discovering detailed information on intangible assets held by companies in the capital market and developing disclosure policies.
Keywords
- Intangible asset productivity
- Analyst forecast error
- Analyst overestimate
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