Open AccessEarnings Predictability And Broker-Analysts’ Earnings Forecast Bias
Author(s) -
Michael Eames,
Steven M. Glover
Publication year - 2017
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v33i6.10061
Subject(s) - earnings , optimism , predictability , pessimism , optimism bias , economics , preference , sample (material) , business , econometrics , actuarial science , accounting , microeconomics , psychology , statistics , social psychology , mathematics , philosophy , chemistry , epistemology , chromatography
Scholars have reasoned that analysts issue optimistic forecasts to improve their access to managers’ private information when earnings are unpredictable. While this requires a managerial preference for analyst forecast optimism, the observed walk-down of analyst expectations to beatable forecasts is consistent with a managerial preference for pessimism in short-horizon forecasts. Using data from various sample periods, alternative model specifications, and various measures of earnings unpredictability, we find that pessimism, not optimism, in short-horizon forecasts is associated with increasingly unpredictable earnings. Our results suggest that firms can more effectively manage analysts’ earnings expectations downward when earnings are relatively unpredictable.