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Financial analysts' forecast revisions and managers' reporting behavior

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  • Beyer, Anne

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.

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  • Beyer, Anne, 2008. "Financial analysts' forecast revisions and managers' reporting behavior," Journal of Accounting and Economics, Elsevier, vol. 46(2-3), pages 334-348, December.
    • Handle: RePEc:eee:jaecon:v:46:y:2008:i:2-3:p:334-348
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    2. Emna JABALLAH & Wided YOUSFI & Mohamed Ali ZARAI, 2014. "Quality of financial reports: Evidence from the Tunisian firms," E3 Journal of Business Management and Economics., E3 Journals, vol. 5(2), pages 030-038.
    3. Sung Hwan Jung, 2017. "The contingent effect of analyst coverage: how does analyst coverage affect innovation and Tobin’s Q?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(1-2), pages 43-67, April.
    4. Reto Cueni & Bruno S. Frey, 2014. "Forecasts and Reactivity," CREMA Working Paper Series 2014-10, Center for Research in Economics, Management and the Arts (CREMA).
    5. Nwaobia A. N. & Kwarbai J. D. & Jayeoba, O. O. & Ajibade A. T., 2016. "Financial Reporting Quality on Investors’ Decisions," International Journal of Economics and Financial Research, Academic Research Publishing Group, vol. 2(7), pages 140-147, 07-2016.
    6. Jeffery Abarbanell & Hyungshin Park, 2017. "Do Bright-Line Earnings Surprises Really Affect Stock Price Reactions?," Management Science, INFORMS, vol. 63(4), pages 1063-1084, April.
    7. Chia-Feng (Jeffrey) Yu, 2017. "Interactive Reporting Bias Surrounding CEO Turnover," European Accounting Review, Taylor & Francis Journals, vol. 26(2), pages 239-282, April.
    8. Henock Louis & Amy X. Sun & Oktay Urcan, 2013. "Do Analysts Sacrifice Forecast Accuracy for Informativeness?," Management Science, INFORMS, vol. 59(7), pages 1688-1708, July.
    9. April Knill & Kristina Minnick & Ali Nejadmalayeri, 2012. "Experience, information asymmetry, and rational forecast bias," Review of Quantitative Finance and Accounting, Springer, vol. 39(2), pages 241-272, August.
    10. Sanjay W. Bissessur & David Veenman, 2016. "Analyst information precision and small earnings surprises," Review of Accounting Studies, Springer, vol. 21(4), pages 1327-1360, December.
    11. Konrad Lang, 2018. "Voluntary Disclosure and Analyst Forecast," European Accounting Review, Taylor & Francis Journals, vol. 27(1), pages 23-36, January.
    12. Evgeny Petrov, 2020. "Voluntary Disclosure and Informed Trading," Contemporary Accounting Research, John Wiley & Sons, vol. 37(4), pages 2257-2286, December.
    13. Su, Kun & Zhang, Miaomiao & Liu, Chengyun, 2022. "Financial derivatives, analyst forecasts, and stock price synchronicity: Evidence from an emerging market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    14. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
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