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

Author

Listed:
  • Régis Breton

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

  • Sébastien Galanti

    (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

  • Christophe Hurlin

    (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

  • Anne-Gaël Vaubourg

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - Université Montesquieu - Bordeaux 4)

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.

Suggested Citation

  • Régis Breton & Sébastien Galanti & Christophe Hurlin & Anne-Gaël Vaubourg, 2013. "Does the firm-analyst relationship matter in explaining analysts' earnings forecast errors?," Working Papers hal-00862996, HAL.
  • Handle: RePEc:hal:wpaper:hal-00862996
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00862996
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    References listed on IDEAS

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    Keywords

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