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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.

Suggested Citation

  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. repec:wsi:afexxx:v:12:y:2017:i:03:n:s2010495217500142 is not listed on IDEAS
    6. 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.
    7. 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).
    8. Helen Brown-Liburd & Jeffrey Cohen & Greg Trompeter, 2013. "Effects of Earnings Forecasts and Heightened Professional Skepticism on the Outcomes of Client–Auditor Negotiation," Journal of Business Ethics, Springer, vol. 116(2), pages 311-325, August.

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