Financial Analysts' Forecast Revisions and Managers' Reporting Behavior

34 Pages Posted: 2 Jun 2008 Last revised: 16 Apr 2012

See all articles by Anne Beyer

Anne Beyer

Stanford University - Graduate School of Business

Date Written: May 1, 2008

Abstract

This paper studies an analyst’s forecasting strategy and a manager’s earnings management policy. When reporting earnings, the manager trades off the disutility he obtains from falling short of the analyst’s forecast against the costs of manipulating earnings. The model predicts that (i) the analyst’s forecast exceeds median reported earnings; (ii) the analyst is more likely to revise his forecast downward than upward; (iii) mean and median forecast errors are larger in magnitude when the analyst has less precise information; and (iv) the stock market is, on average, more sensitive to reported earnings than to the analyst’s forecasts.

Keywords: Financial analysts, analyst forecasts, earnings forecasts, earnings management, valuation

Suggested Citation

Beyer, Anne, Financial Analysts' Forecast Revisions and Managers' Reporting Behavior (May 1, 2008). Journal of Accounting & Economics (JAE), Vol. 46, No. 2-3, December 2008, Available at SSRN: https://ssrn.com/abstract=1139977 or http://dx.doi.org/10.2139/ssrn.1139977

Anne Beyer (Contact Author)

Stanford University - Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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