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Analyst ability and research effort: non-EPS forecast provision as a research quality signal

Author

Listed:
  • Peter F. Pope

    (Bocconi University)

  • Tong Wang

    (Barclays Bank plc)

Abstract

The range of non-EPS forecast types provided by individual analysts to I/B/E/S has increased dramatically over time but varies considerably across firms. We propose that in providing a broader range of forecast types, analysts can signal superior research ability and research effort. Consistent with this hypothesis, we document positive associations between the number of forecast types (NFT) an analyst provides and common proxies for research quality, including earnings forecast accuracy, price target accuracy, stock recommendation profitability, market reactions to stock recommendation revisions, and analyst career outcomes. The effects of NFT are incremental to other quality proxies used in the literature and are distinct from the issuance of specific non-EPS forecast types studied previously (e.g., cash flow forecasts). We demonstrate the information value of NFT to investors by examining the out-of-sample performance of portfolios formed conditional on NFT and exploiting revisions in consensus earnings forecasts and individual analysts’ stock recommendations. We conclude that the number of forecast types an analyst provides for a firm is a readily available proxy for the quality of her research.

Suggested Citation

  • Peter F. Pope & Tong Wang, 2023. "Analyst ability and research effort: non-EPS forecast provision as a research quality signal," Review of Accounting Studies, Springer, vol. 28(3), pages 1263-1315, September.
    • Handle: RePEc:spr:reaccs:v:28:y:2023:i:3:d:10.1007_s11142-023-09791-8
    DOI: 10.1007/s11142-023-09791-8
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    More about this item

    Keywords

    Analysts; Earnings forecasts; Forecasting ability; I/B/E/S; Price target forecasts; Stock recommendations; Capital market reactions; Analyst career outcomes;
    All these keywords.

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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