Management Guidance and Analysts' Long Term Growth Forecasts

2008 ◽  
Author(s):  
Andreas Simon ◽  
Peter Clarkson ◽  
Irene Tutticci
Keyword(s):  
Management Guidance ◽  
Growth Forecasts

scholarly journals How Does the Market Interpret Analysts' Long-Term Growth Forecasts?

2005 ◽  
Vol 20 (2) ◽  
pp. 147-166 ◽  
Author(s):  
Steven A. Sharpe
Keyword(s):  
Price Ratio ◽  
Ratio Model ◽  
Forecast Horizon ◽  
Equity Analysts ◽  
Valuation Model ◽  
Price Earnings Ratio ◽  
Linear Regressions ◽  
Growth Forecasts

The long-term growth forecasts of equity analysts do not have well-defined horizons, an ambiguity of substantial import for many applications. I propose an empirical valuation model, derived from the Campbell-Shiller dividend-price ratio model, in which the forecast horizon used by the “market” can be deduced from linear regressions. Specifically, in this model, the horizon can be inferred from the elasticity of the price-earnings ratio with respect to the long-term growth forecast. The model is estimated on industry- and sector-level portfolios of S&P 500 firms over 1983-2001. The estimated coefficients on consensus long-term growth forecasts suggest that the market applies these forecasts to an average horizon somewhere in the range of 5 to 10 years.

Analysts’ Incentives to Overweight Management Guidance When Revising Their Short-Term Earnings Forecasts

2010 ◽  
Vol 85 (5) ◽  
pp. 1617-1646 ◽  
Author(s):  
Mei Feng ◽  
Sarah McVay
Keyword(s):  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Investment Banking ◽  
Equity Offerings ◽  
Short Term ◽  
Management Guidance ◽  
Banking Business

ABSTRACT: We document that, when revising their short-term earnings forecasts in response to management guidance, analysts wishing to curry favor with management weight the guidance more heavily than predicted, based on the credibility and usefulness of the guidance. This overweighting of guidance is present prior to equity offerings and other events that could lead to investment banking business. Although analysts sacrifice their forecast accuracy by overweighting management guidance, they appear to benefit, on average, by subsequently gaining the underwriting business for their banks. Thus, while analysts wishing to please managers are optimistic in their long-term earnings forecasts, they take their cue from management when determining their short-term earnings forecasts.

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