CEO Optimism, Analyst Rationality, and Earnings Forecast Bias

2009 ◽  
Author(s):  
M.H. Franco Wong ◽  
Frank Zhang
Keyword(s):  
Earnings Forecast ◽  
Forecast Bias

scholarly journals Earnings Predictability And Broker-Analysts’ Earnings Forecast Bias

2017 ◽  
Vol 33 (6) ◽  
pp. 1285-1302
Author(s):  
Michael Eames ◽  
Steven Glover
Keyword(s):  
Private Information ◽  
Alternative Model ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Earnings Expectations ◽  
Forecast Bias ◽  
Analyst Expectations ◽  
Earnings Predictability ◽  
Using Data ◽  
Short Horizon

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.

scholarly journals Are Analysts Overoptimistic about the Prospects of Sin Firms?

2017 ◽  
Vol 8 (4) ◽  
pp. 99 ◽  
Author(s):  
Jin Zhang ◽  
Haeyoung Shin
Keyword(s):  
Stock Price ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Positive Association ◽  
Negative Association ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Absolute Value ◽  
Forecast Bias ◽  
The Difference

We investigate the association between the bias and accuracy of consensus analysts’ earnings forecasts and whether a firm is a sin firm or not. We measure analyst forecast bias as the difference between the consensus earnings forecast and the actual earnings, scaled by the stock price. We measure analyst forecast accuracy as the negative of the absolute value of the difference between the firms’ forecasted and actual earnings, scaled by the stock price. We find a positive association between the level of forecast optimism and sin firm membership. We find a negative association between the level of forecast accuracy and sin firm membership. Overall, these results imply that analysts tend to issue over-optimistic and less accurate earnings forecasts on sin firms.

US Analyst Regulation and the Earnings Forecast Bias around the World

2012 ◽  
Vol 20 (3) ◽  
pp. 435-461 ◽  
Author(s):  
Armen Hovakimian ◽  
Ekkachai Saenyasiri
Keyword(s):  
Earnings Forecast ◽  
Forecast Bias ◽  
The World

Stock Recommendations as a Source of Bias in Earnings Forecasts

2006 ◽  
Vol 18 (1) ◽  
pp. 37-51 ◽  
Author(s):  
Michael J. Eames ◽  
Steven M. Glover ◽  
Jane Jollineau Kennedy
Keyword(s):  
Cognitive Processes ◽  
Earnings Forecasts ◽  
Economic Incentives ◽  
Securities And Exchange Commission ◽  
Earnings Forecast ◽  
Systematic Bias ◽  
Stock Recommendations ◽  
Forecast Bias ◽  
Sarbanes Oxley ◽  
Brokerage Firms

Recent scandals and controversies have focused substantial attention on the behavior of financial analysts. Responses such as the Sarbanes-Oxley Act, new regulations at securities exchanges, and massive legal settlements are consistent with the perception that analysts' research and stock recommendations exhibit significant self-serving bias. While anecdotal and legal evidence support the allegations that some analysts have intentionally mislead the investing public, recent archival research suggests unintentional cognitive processes also contribute to systematic bias in analysts' forecasts (Eames et al. 2002). However, studies based on stock-market data cannot distinguish between unintentional cognitive processes and intentional bias stemming from economic incentives (e.g., trade boosting). In a laboratory experiment we eliminate economic incentives and find that cognitive processes unintentionally lead to earnings forecast bias. Our results suggest that recent regulations and policy changes by Congress, the Securities and Exchange Commission, exchange markets, and brokerage firms will not totally eliminate bias in analysts' earnings forecasts.

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