Financial Analysts' Forecast Revisions and Managers' Reporting Behavior
34 Pages Posted: 2 Jun 2008 Last revised: 16 Apr 2012
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: Suggested Citation
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