The Effect of SG&A on Analyst Forecasts and the Case of Distribution Industries

LIM,, S. (2019). The Effect of SG&A on Analyst Forecasts and the Case of Distribution Industries. The Journal of Distribution Science, 17(10), 41-48, https://doi.org/https://doi.org/10.15722/jds.17.10.201910.41

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Abstract

Purpose - This study investigates whether financial analysts consider the intangible investment implicit in selling, general, and administrative (SG&A) expenditures to forecast firms' future earnings. Research design, data, and methodology - Using 52,609 U.S. firm-year observations spanning 1984-2016, this study examines the association between the Intangible investment implicit in SG&A expenditures and properties of analysts' earnings forecasts. To estimate the Intangible investment of SG&A, I decompose SG&A excluding R&D and advertising expenditures into maintenance and investment components following Enache and Srivastava (2017). Results - The main results show that analysts' earnings forecast errors and dispersion in analysts' forecasts increase with the intangible investment derived from SG&A because the investment component of SG&A affects future earnings and the uncertainty of those earnings. However, these results are weakened in the wholesale and retail industries where firms have a higher level of investment component of SG&A. I attribute the weaker results to low R&D expenditures in those industries. Conclusion - This study indicates that financial analysts incorporate the intangible investment of SG&A into their earnings forecasts differently across firms and industries. Furthermore, this study supports the argument for the separate reporting of the investment nature of SG&A from other operating expenses such as maintenance nature of SG&A.

keywords: Intangible Investments, SG&amp, A, Distribution Industries

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Article Contents

Vol.17 No.10

The Effect of SG&A on Analyst Forecasts and the Case of Distribution Industries

Abstract

Reference

The Journal of Distribution Science