Bearish Analysts and the Issuance of Difficult-to-Beat Earnings Forecasts

46 Pages Posted: 27 Mar 2020 Last revised: 19 Aug 2022

See all articles by Andrew C. Call

Andrew C. Call

Arizona State University (ASU) - School of Accountancy

Nathan Y. Sharp

Texas A&M University - Department of Accounting

Mason C. Snow

Weber State University (WSU)

Date Written: August 18, 2022

Abstract

Prior research finds that sell-side analysts are generally willing partners with company management in facilitating the consistent meeting or beating of earnings expectations. We examine analysts who demonstrate the opposite behavior: issuing an unusually optimistic earnings forecast at the end of the year that increases the likelihood of an earnings miss. We first identify a set of analysts whose unfavorable stock recommendations suggest a pessimistic outlook on the firm, and define a difficult-to-beat forecast as a final earnings forecast prior to the earnings announcement that exceeds even the most optimistic forecast issued by any other analyst covering the stock. We find that 11% of all firm-year observations are subject to at least one such forecast, and that these forecasts increase the likelihood that a firm misses the consensus forecast by 21%. However, the market reaction to a negative earnings surprise is muted when an analyst has issued a difficult-to-beat forecast.

Keywords: Analyst Forecasts, Stock Recommendations, Bearish Analysts, Meet-or-Beat, Earnings Surprise

JEL Classification: G10, G17, G20, G24, M40, M41

Suggested Citation

Call, Andrew C. and Sharp, Nathan Y. and Snow, Mason C., Bearish Analysts and the Issuance of Difficult-to-Beat Earnings Forecasts (August 18, 2022). Available at SSRN: https://ssrn.com/abstract=3548156 or http://dx.doi.org/10.2139/ssrn.3548156

Andrew C. Call (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Nathan Y. Sharp

Texas A&M University - Department of Accounting ( email )

4353 TAMU
College Station, TX 77843-4353
United States
979-845-0338 (Phone)

Mason C. Snow

Weber State University (WSU) ( email )

3802 University Circle
Ogden, UT 84408
United States

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