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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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Author Info

  • Anne-Gael Vaubourg

    ()

  • Valdete Berisha-Krasniqui

    (Larefi, Université Bordeaux IV)

  • Sébastien Galanti

    (LEO, Université d'Orléans)

  • Christophe Hurlin

    (LEO, Université d'Orléans)

  • Régis Breton

    (Centre de recherche de la Banque de France)

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File URL: http://laf.u-bordeaux4.fr/RePEc/CR_13EFI04.pdf
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Bibliographic Info

Paper provided by Larefi, Université Bordeaux 4 in its series Larefi Working Papers with number 1304.

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Length: 49 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:laf:wpaper:cr1304

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

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  20. Breusch, Trevor & Ward, Michael B & Nguyen, Hoa & Kompas, Tom, 2010. "On the fixed-effects vector decomposition," MPRA Paper 21452, University Library of Munich, Germany.
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