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Does the firm-analyst relationship matter in explaining analysts' earnings forecast errors?

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Author Info

  • Régis Breton

    ()
    (Centre de recherche de la Banque de France - Banque de France)

  • Sébastien Galanti

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

  • Christophe Hurlin

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

  • Anne-Gaël Vaubourg

    ()
    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux IV : EA2954)

Abstract

We study whether financial analysts' concern for preserving good relationships with firms' managers motivates them to issue pessimistic or optimistic forecasts. Based on a dataset of one-yearahead EPS forecasts issued by 4 648 analysts concerning 241 French firms (1997-2007), we regress the analysts' forecast accuracy on its unintentional determinants. We then decompose the fixed effect of the regression and we use the firm-analyst pair effect as a measure of the intensity of the firm-analyst relationship. We find that a low (high) firm-analyst pair effect is associated with a low (high) forecast error. This observation suggests that pessimism and optimism result from the analysts' concern for cultivating their relationship with the firm's management.

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Bibliographic Info

Paper provided by HAL in its series Working Papers with number hal-00862996.

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Date of creation: 16 Aug 2013
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Handle: RePEc:hal:wpaper:hal-00862996

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Keywords: financial analysts; earnings forecasts; soft information; panel regression.;

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