Analysts’ accrual-related over-optimism: do analyst characteristics play a role?

Analysts’ accrual-related over-optimism: do analyst characteristics play a role? Bradshaw et al. (J Acc Res 39:45–74, 2001) find that analyst forecast over-optimism is greater for firms with high accruals. This “accrual-related over-optimism” is generally interpreted as evidence that analyst forecasts do not fully incorporate predictable earnings reversals associated with high accruals. We investigate whether analyst experience, access to resources (brokerage size), and portfolio complexity moderate the relation between over-optimistic forecasts and high accruals. We demonstrate the robustness of accrual-related over-optimism to controls for cash flow and prior forecast errors. We find that accrual-related over-optimism is lower for analysts with greater general experience and for analysts following fewer firms but find only limited evidence of lower accrual-related over-optimism for analysts from larger brokerages and for analysts following fewer industries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Analysts’ accrual-related over-optimism: do analyst characteristics play a role?

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Publisher
Springer US
Copyright
Copyright © 2009 by Springer Science+Business Media, LLC
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-009-9118-3
Publisher site
See Article on Publisher Site

Abstract

Bradshaw et al. (J Acc Res 39:45–74, 2001) find that analyst forecast over-optimism is greater for firms with high accruals. This “accrual-related over-optimism” is generally interpreted as evidence that analyst forecasts do not fully incorporate predictable earnings reversals associated with high accruals. We investigate whether analyst experience, access to resources (brokerage size), and portfolio complexity moderate the relation between over-optimistic forecasts and high accruals. We demonstrate the robustness of accrual-related over-optimism to controls for cash flow and prior forecast errors. We find that accrual-related over-optimism is lower for analysts with greater general experience and for analysts following fewer firms but find only limited evidence of lower accrual-related over-optimism for analysts from larger brokerages and for analysts following fewer industries.

Journal

Review of Accounting StudiesSpringer Journals

Published: Dec 23, 2009

References

  • The rewards to meeting or beating earnings expectations
    Bartov, E; Givoly, D; Hayn, C
  • Do analysts and auditors use information in accruals?
    Bradshaw, MT; Richardson, SA; Sloan, RG
  • Favorable versus unfavorable recommendations: The impact on analyst access to management-provided information
    Chen, S; Matsumoto, DA
  • Categorization and representation of physics problems by experts and novices
    Chi, M; Feltovich, PJ; Glaser, R
  • Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?
    Clement, MB
  • Errors in estimating accruals: Implications for empirical research
    Collins, DW; Hribar, P
  • Investor sophistication and the mispricing of accruals
    Collins, DW; Gong, G; Hribar, P
  • The extreme future stock returns following I/B/E/S earnings surprises
    Doyle, JT; Lundholm, RJ; Soliman, MT
  • Re-examining the effects of regulation fair disclosure using foreign listed firms to control for concurrent shocks
    Francis, J; Nanda, D; Wang, X
  • The effectiveness of regulation FD
    Gintschel, A; Markov, S
  • Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature
    Healy, PM; Palepu, KG

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