Dr. Heba Besheir Eltokhy Abd Elfattah :: Publications:

1.Research problem: Accounting earnings are considered the reality that expresses the actual activity of companies. In order to measure and evaluate the financial performance of companies and make investment decisions related to them, external parties concerned rely on financial reports that contain the actual accounting profits values. With the increasing interest of stakeholders not only in measuring accounting earnings but also in the quality of accounting earnings(Earnings Quality), to indicate the extent of the profit benefit and to express the strength of the company's financial performance and the extent of its ability to continue. Hence, motives began to emerge among corporate management to express the quality of the company's accounting earnings by demonstrating the company's ability to grow and continue, with the aim of achieving personal interests for corporate management, represented by maintaining their administrative positions and ensuring that they receive rewards for the board of directors as a result of financial reports showing that the company achieved higher quality earnings than its peers, given that companies whose financial reports show higher quality earnings are considered more preferred by users of financial reports than their peers with lower quality earnings. Regarding the external parties’ view of the earnings quality, accounting literature has provided many indicators and models through which the accounting earnings quality can be measured, the most important of which are the quality of accruals, income smoothing, profit holdings, the appropriate timing of profit recognition, profit continuity, and the predictive ability of future earnings. The financial collapses of major global companies, along with the succession of political and health crises and shocks, have led many investors to rely on the financial analyses and forecasts provided by financial analysts, especially with regard to future profits. Predicting a company's future profits is an important indicator for stakeholders interested in financial reports to assess the company's sustainability and ability to avoid financial failure and distress. As stakeholders desire accurate forecasts of a company's future profits, financial analysts are best placed to meet their demands in formulating financial policies and selecting the best investment alternatives through accurate forecasting of future profits, which is the primary indicator of the company's future financial performance. Accounting studies have focused on analyzing various accounting earnings forecasting models, which began by relying on accounting earnings figures announced in companies' financial reports. Studies have since emerged that advocate the importance of relying on cash flow figures as the primary driver for determining accounting profits. Studies have become increasingly interested in analyzing how accounting profits are generated by studying the main and secondary revenue elements, as well as the details of total costs, the asymmetry of costs, and the most sticky costs, which Arab studies have expressed with the term “sticky costs,” in order to arrive at the actual profit of the company, through which external parties, including financial analysts, can predict future earnings. Relevant studies have indicated that the asymmetry of cost behavior plays a significant role (especially under uncertainty conditions) in the inaccuracy of accounting earning forecasts due to sudden changes in the volume of activity or as a result of financial shocks and external conditions resulting from financial instability. When demand for a company's products decreases, the stickiness of costs leads to a reduction in the level of achieved earnings. When demand increases, the increase in sticky costs leads to achieving profits lower than expected, which affects the ability of external parties to evaluate and estimate the future value of the company. This necessarily requires reliance on quantitative and statistical models to develop forecasts of accounting profits and stock prices in order to meet the needs of investors. A stream of accounting literature has turned to analyze the relationship between cost behavior and the ability to predict profits using various models and methods. Studies have begun to test the effect of sticky cost behavior on the accuracy of financial analysts’ profit forecasts. One study indicated that the more sticky cost behavior increases, the lower the accuracy of financial analysts’ profit forecasts. This means that the increase in the absolute value of the error in financial analysts’ profit forecasts is greater in the presence of sticky costs than in the absence of sticky costs, especially in cases of low sales levels. Another study indicated that under conditions of uncertainty, the lower the demand for a company's products, the more sticky costs contribute to the decline in earning levels to the lowest possible level. The higher the demand for a company's products, the accompanying increase in sticky costs leads to higher earnings, but to a lower level than expected earnings. The study indicated that when forecasting future profits, the change in cost asymmetry must be linked to the change in the volume of activity. The topic of the effect of inventory stickiness on the accuracy of financial analysts' forecasts is relatively new, but it is an extension of accounting thought that addressed the effect of cost stickiness on forecasting future earnings and, consequently, the accuracy of financial analysts' forecasts of earnings. On the other hand, financial constraints are one of the biggest challenges facing companies, as financial constraints are the obstacles facing companies in obtaining one of the necessary sources to finance their investments, as companies face great challenges in providing external sources of financing represented by obtaining loans or issuing shares due to the rise in interest rates. Therefore, companies may be forced to postpone or abandon investment opportunities that may achieve positive cash flows for the company and thus increase its profits and ability to continue and grow due to the high cost of external financing compared to the cost of internal financing. Companies can be classified into financially restricted and financially unrestrained companies based on the level of available liquidity and the ability of companies to use cash liquidity to seize investment opportunities that generate cash flows for the company, known as the Kablan & Zingales Index (KZ-Index). In the same context, one study indicated that the age of the company and the level of experience in the industry are among the main determinants of the ability of companies to obtain external financing, as the company’s experience in the industry gives a positive impression to creditors due to the company’s previous work and its ability to meet its obligations, which leads to raising the credit rating of large companies that have a long history in the industry. Regarding the relationship between financial constraints and the accuracy of financial analysts' earnings forecasts, previous studies have shown that companies with political connections are less closely linked to the accuracy of financial analysts' forecasts and more closely linked to the dispersion of financial analysts' forecasts. This has been attributed to increased financial constraints on companies and poor-quality accounting earnings. In the same context, one study indicated that companies with financial constraints are less vulnerable to cost asymmetry due to management receiving optimistic profit forecasts resulting from increased future sales. Furthermore, the degree of financial constraints reduces the accuracy of financial analysts' profit forecasts by reducing financial performance and increasing the degree of risk to which companies are exposed. Another study indicated that the accuracy of financial analysts' forecasts impacts a company's reduced financial constraints, thereby reducing future cash holding. The study attributed this to the fact that smaller and older companies have a negative impact on the relationship between the accuracy of financial analysts' forecasts and cash holding. In this context, one study concluded that the greater the financial constraints, the greater the risk companies face in stock price crash risk. The study recommended that companies use external parties (financial analysts) to provide future stock price forecasts, which helps reduce the stock price crash risk, especially in companies with higher financial constraints. As a result of the interest of previous studies in analyzing and studying the determinants of the accuracy of financial analysts' earning forecasts due to their repercussions on the decisions of relevant external parties, and as a result of the association of the accuracy of financial analysts' forecasts with many internal factors within the company, including cost behavior, especially sticky costs and the extent of their impact on the accuracy of financial analysts' forecasts, especially in cases of uncertainty accompanying companies during periods of crises and shocks, and in light of the above and as a result of the relative scarcity of Arab studies that dealt with inventory stickiness as a type of sticky costs, the current study attempts to study the moderating role of accounting earnings quality in explaining the relationship between inventory stickiness and financial constraints on the accuracy of financial analysts' forecasts in the Egyptian environment, by trying to answer the following research questions: 1- To what extent does inventory stickiness affect the accuracy of financial analysts' forecasts? 2- To what extent does financial constraints affect the accuracy of financial analysts' forecasts? 3- To what extent does accounting earnings quality affect the relationship between inventory stickiness and the accuracy of financial analysts' forecasts? 4- To what extent does accounting earnings quality affect the relationship between financial constraints and the accuracy of financial analysts' forecasts? 2. Research Objectives: The main objective of the research is to assess the accuracy of financial analysts’ forecasts of accounting earnings and stock prices, and to provide reliable information that helps relevant parties in making sound investment decisions. This is achieved by studying the impact of both inventory stickiness as a type of sticky costs and financial constraints as a type of external pressures that companies are exposed to on the accuracy of financial analysts’ forecasts, in light of the moderating role of accounting profit quality in the Egyptian environment. The following sub-objectives emerge from the main objective of the research: - Studying the impact of inventory stickiness on the accuracy of financial analysts' forecasts for companies listed on the Egyptian Stock Market. - Analyzing the impact of financial constraints on the accuracy of financial analysts' forecasts for companies listed on the Egyptian Stock Market. - Evaluating the impact of accounting earnings quality in explaining the relationship between inventory stickiness and the accuracy of financial analysts' forecasts. - Evaluating the impact of accounting earnings quality in explaining the relationship between financial constraints and the accuracy of financial analysts' forecasts. 3. Research Importance: The importance of the study can be divided into scientific and practical importance as follows: A. The Scientific Importance of the Research: The research derives its importance from its attempt to keep pace with relevant studies evaluating the impact of both inventory stickiness and financial constraints on the accuracy of financial analysts' forecasts for companies listed on the Egyptian Stock Exchange. This is achieved by examining and analyzing studies that address the nature of the relationship between cost stickiness and the accuracy of financial analysts' forecasts as an introduction to analyzing inventory stickiness, a newly emerging research topic. The study also analyzes accounting literature focused on providing quantitative models to measure companies' financial constraints, as one of the main external factors affecting the sustainability of a company's profits and the ability to predict future profits. Financial analysts are active and experienced actors who provide the necessary information to stakeholders. B. Practical Importance of the Research: The study derives its practical importance from its attempt to examine the impact of inventory stickiness on the decisions of stakeholders within the company. Previous studies have focused on analyzing the impact of cost behavior on the accuracy of investment decisions through trusted stakeholders, namely financial analysts. This study examines the impact of different levels of inventory stickiness on the accuracy of financial analysts' forecasts under favorable and unfavorable conditions, using a time series of various sectors on the Egyptian Stock Exchange. It also attempts to assist stakeholders in making their investment decisions by shedding light on the external factors affecting the accuracy of analysts' forecasts, such as financial constraints. This is applied to the Egyptian environment, which differs from foreign environments in terms of legislative frameworks and regulatory laws in general, and investors in particular. 4. Scope of the research: The research limitations are as follows: 4/1. The applied study is limited to a cross-sectional sample representing companies listed on the Egyptian Stock Exchange during the period from 2017 to 2023, in light of a set of controls necessary to assess the generalizability of the study's results, which will be discussed in the applied study. 4/2. The current study is limited to analyze the impact of inventory stickiness as a type of sticky cost, excluding other types of costs. The aim is to measure the impact of inventory stickiness on the accuracy of financial analysts' forecasts of stock prices and future earnings, based on the forecasts provided by Hermes, and not other measurement methods. Therefore, the study's coverage of financial analysts, the dispersion of financial analysts, and other different measurement methods are beyond the scope of the study. 5. Research hypotheses: In light of the research objectives and questions, the research hypotheses were formulated as follows: H1: Inventory stickiness negatively affects the accuracy of financial analysts' forecasts of stock prices and accounting earnings. H2: There is no significant effect of financial constraints on the accuracy of financial analysts' forecasts of stock prices and accounting earnings. H3: There is no effect of the moderating role of accounting earnings quality in explaining the relationship between inventory stickiness and the accuracy of financial analysts' forecasts of stock prices and accounting earnings. H4: There is no effect of the moderating role of accounting earnings quality in explaining the relationship between financial constraints and the accuracy of financial analysts' forecasts of stock prices and accounting earnings. 6. Research plan: In light of what was presented in the study problem and its objectives, the remainder of the study will be divided into four main sections. The second section represents the theoretical framework of the study, include: concept, determinants and methods of measuring the accuracy of financial analysts' forecasts are addressed, as well as the concept and methods of measuring inventory stickiness and financial constraints. The third section deals with previous studies related to the nature of the relationship between inventory stickiness, financial constraints and the quality of accounting profits on the accuracy of financial analysts' forecasts, and then deriving the study's hypotheses. The fourth section deals with the applied study by presenting the study's community and sample, methods of measuring the study's variables and the statistical methods used in the study, then analyzing the results of testing the study's hypotheses. Finally, the fifth section deals with presenting the results and recommendations of the study and the proposed future studies. 7. Results: The most important results of the research are as follows: • There is a negative impact of stock stickiness on the accuracy of financial analysts' forecasts of stock prices, in addition to a negative impact of stock stickiness on the accuracy of financial analysts' forecasts of accounting earnings. • There is a negative impact of financial constraints measured according to the KZ-Index model on the accuracy of financial analysts' forecasts of stock prices, in addition to a negative impact of financial constraints measured according to the KZ-Index model on the accuracy of financial analysts' forecasts of accounting earnings. • There is a positive effect of financial constraints measured according to the SA-Index model on the accuracy of financial analysts' stock price forecasts. Furthermore, there is a positive effect of financial constraints measured according to the SA-Index model on the accuracy of financial analysts' accounting profit forecasts. • There is a negative effect of the interactive effect between inventory stickiness and cumulative earnings quality on the accuracy of financial analysts' stock price forecasts. This means that accounting earnings quality increased the explanatory power of the model analyzing the effect of inventory stickiness on the accuracy of financial analysts' stock price forecasts. Furthermore, there is a negative effect of the interactive effect between inventory stickiness and cumulative earnings quality on the accuracy of financial analysts' accounting profit forecasts. This means that accounting earnings quality increased the explanatory power of the model analyzing the effect of inventory stickiness on the accuracy of financial analysts' earnings forecasts. • There is a negative effect of the interactive effect between inventory stickiness and current earnings quality on the accuracy of financial analysts' stock price forecasts. In addition, there is a negative effect of the interactive effect between inventory stickiness and current earnings quality on the accuracy of financial analysts' accounting earnings forecasts. This indicates that accounting earnings quality increased the explanatory power of the model analyzing the effect of inventory stickiness on the accuracy of financial analysts' earnings forecasts. • There is no significant effect of the interactive effect between financial constraints and cumulative earnings quality. In addition, there is a positive effect of the interactive effect between financial constraints and cumulative earnings quality on financial analysts' accounting earnings forecasts. • There is a significant negative effect of the interactive effect between financial constraints and cumulative earnings quality on the accuracy of financial analysts' stock price forecasts. Furthermore, there is a significant negative effect of the interactive effect between financial constraints and cumulative earnings quality on the accuracy of financial analysts' accounting profit forecasts. • Additional analyses revealed no significant effect of inventory stickiness on the accuracy of financial analysts' stock price forecasts for companies with high cumulative earnings quality. However, there is a negative effect of inventory stickiness on the accuracy of financial analysts' stock price forecasts for companies with low cumulative earnings quality. Furthermore, there is no significant effect of inventory stickiness on the accuracy of financial analysts' accounting profit forecasts for companies with high cumulative earnings quality. However, there is a negative effect of inventory stickiness on the accuracy of financial analysts' accounting earning forecasts for companies with low cumulative earnings quality. • Additional analyses showed a negative effect of financial constraints on the accuracy of financial analysts’ forecasts of stock prices in companies with high and low cumulative earnings quality, in addition to a negative effect of financial constraints on the accuracy of financial analysts’ forecasts of accounting earnings in companies with high and low cumulative earnings quality. 8. Recommendations: In light of the results of the applied study, the research recommends the following: • Company management should accurately identify the determinants of cost behavior, particularly inventory stickiness. Failure to accurately estimate inventory cost behavior leads to inaccurate estimates of the cost structure, which in turn leads to inaccurate measurement of total costs, which negatively impacts the accurate determination of company profits. • In light of the multiple crises and financial and political shocks, company managements are interested in analyzing the behavior of inventory stickiness in terms of the change in the size of the company’s activity and the instability of sales from one period to another, and the resulting impact on measuring the financial performance of companies and the ability to predict future profits, as in light of conditions of uncertainty, low demand for the company’s products, and low sales volume, this may have a negative impact on the prices of company shares. • The Capital Market Authority and the Stock Exchange Disclosure Department must periodically disclose the opportunistic practices of company managements related to modifying cost behavior to achieve personal interests represented by maintaining their positions and obtaining unreal rewards that have a real impact on the accurate estimation and consequently the measurement of costs and their repercussions on companies’ stock prices and consequently the predictive ability of earnings. • Financial analysts must pay attention to the accuracy of forecasts of accounting profits and stock prices by paying attention to the determinants of sticky costs, especially the accounting earnings quality, while paying attention to dividing and classifying companies according to the quality of accounting profits into companies with high earning quality and other companies with low earning quality, because of its negative impact on the accuracy of financial analysts’ forecasts of stock prices and accounting earnings. • Financial analysts should focus on studying the determinants of financial constraints on companies whose accounting earnings are forecasted, as financial constraints impact the decisions of current and potential investors due to increased agency costs and information asymmetry. • The Capital Market Authority should provide a database of financial analysts in the Egyptian environment that serves the interests of external parties and investors.