Analyst information production and the timing of annual earnings forecasts

Analyst information production and the timing of annual earnings forecasts We investigate whether the reputation-herding theory or the tradeoff theory explains variation in the timing of individual analysts’ forecasts. Using forecast accuracy improvements, forecast boldness, and the price impact of forecasts as measures of forecast quality, we find that in the information discovery phase that precedes an earnings announcement, earlier forecasts have higher quality than later forecasts. We also find a similar pattern in the information analysis phase that begins with the earnings announcement date. Our findings suggest that consistent with the herding theory, analysts who are more capable participate early in discovering and analyzing information, and therefore earlier forecasts in the information discovery and analysis phases are of higher quality than later forecasts in that phase. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Analyst information production and the timing of annual earnings forecasts

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-014-9278-7
Publisher site
See Article on Publisher Site

Abstract

We investigate whether the reputation-herding theory or the tradeoff theory explains variation in the timing of individual analysts’ forecasts. Using forecast accuracy improvements, forecast boldness, and the price impact of forecasts as measures of forecast quality, we find that in the information discovery phase that precedes an earnings announcement, earlier forecasts have higher quality than later forecasts. We also find a similar pattern in the information analysis phase that begins with the earnings announcement date. Our findings suggest that consistent with the herding theory, analysts who are more capable participate early in discovering and analyzing information, and therefore earlier forecasts in the information discovery and analysis phases are of higher quality than later forecasts in that phase.

Journal

Review of Accounting StudiesSpringer Journals

Published: Feb 1, 2014

References

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