Can securities analysts forecast intangible firms’ earnings?

Much evidence in the 1990s cast serious doubt on securities analysts’ abilities to produce accurate research for intangible firms. Such evidence is in contrast to analysts’ image in the public mind as gatekeepers of the capital markets. This paper addresses the contentious question regarding analysts’ performances in forecasting the future earnings of intangible firms. The assessment is relative to extrapolative time series models. The paper’s results show that the forecast errors produced by both analysts and extrapolative models are positively associated with intangibles that are above the industry norm, which is consistent with the difficulty of processing complex intangible information. However, the impact of intangibles on forecast errors is stronger for the forecasts of extrapolative models than for those of analysts. Analysts’ superiority is positively associated with firms’ specific intangibles, and this association increases as the complexity of the intangible information increases. This finding is consistent with analysts’ better ability to forecast the earnings of intangible firms, relative to extrapolative models.