Analysts' Forecast Precision as a Response to Competition

Lys, Thomas Z.; Soo, L.

doi:10.1177/0148558x9501000404

Cited by 208 publications

(116 citation statements)

References 25 publications

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“…The reason for this is that the analysts have less information available and thus higher uncertainty about a company's results in a fiscal year. Accordingly, this relationship is documented by several studies (e.g., Brown, Richardson, and Schwager 1987;Lys and Soo 1995;Das and Saudaragan 1998;Jacob, Lys, and Neale 1999;Duru and Reeb 2002). We expect a negative sign for this variable in the regression on forecast accuracy.…”

Section: Control Variablessupporting

confidence: 73%

“…Estimating earnings with a higher volatility might not allow incorporating simple models to extrapolate previous earnings trends. Thus, a higher volatility of earnings is likely to result in lower predictability of earnings which leads to a lower forecast accuracy and a higher forecast bias of financial analysts (e.g., Lys and Soo 1995;Das, Levine, and Sivaramakrishnan 1998). As the higher fair value-orientation of IAS/IFRS and US GAAP in comparison to German GAAP might lead to a higher volatility of earnings, c.p.…”

Section: Hypothesesmentioning

confidence: 99%

“…Most of the prior research has been conducted for the US (e.g. Lys and Soo 1995;Mikhail, Walther, and Willis 1997;Alford and Berger 1999;Clement 1999;Jacob, Lys, and Neale 1999;Duru and Reeb 2002;Irvine 2004;Gu and Wang 2005;Lin and Yang 2006) or the UK (e.g. Acker, Horton, and Tonks 2002).…”

Section: Introductionmentioning

confidence: 99%

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Analysts’ Forecast Accuracy in Germany: The Effect of Different Accounting Principles and Changes of Accounting Principles

Ernstberger

Krotter

Stadler³

2008

Bus Res

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This paper assesses the influence of an adoption of IAS/IFRS or US GAAP on the financial analysts’ forecast accuracy in a homogenous institutional framework. Our findings suggest that the forecast accuracy is higher for estimates based on IFRS or US GAAP data than for forecasts based on German GAAP data. Moreover, in the year of switching from German GAAP to US GAAP the forecast accuracy is lower than in other years. The paper contributes to prior research by providing evidence about the usefulness of international accounting data and about the adoption effects of a change to such accounting principles.

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Section: Control Variablessupporting

confidence: 73%

Section: Hypothesesmentioning

confidence: 99%

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Analysts’ Forecast Accuracy in Germany: The Effect of Different Accounting Principles and Changes of Accounting Principles

Ernstberger

Krotter

Stadler³

2008

Bus Res

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“…In my tests for the association between the Discretion ratio, analysts' forecast errors and dispersion, I first use simple statistical tests. I then support these tests with multivariate regressions that control for the following determinants of forecast error and dispersion identified by prior research: size (Brown, Richardson & Schwagger, 1987), analyst following (Lys & Soo 1995), performance or profitability (Brown, 2001), business segment diversification (Thomas, 2002) and international or geographic segment diversification (Duru & Reeb, 2002).…”

Section: Introductionmentioning

confidence: 77%

The Proportion of Non-Operating Income, and Analysts’ Forecasts

Anabila¹

2012

IJEF

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The US Senate Committee that investigated the Enron disaster assessed the role of analysts. At issue was whether analysts misled the public by ignoring warning signals that included a high proportion of non-operating income. Non-operating income derives from secondary activities like investments, but operating income is from the primary business activities like manufacturing. While the analysts admitted their limited ability to forecast Enron's earnings, they denied any intentional deceit and claimed that they were misled by Enron. This study asks whether analysts' ability to predict earnings is generally negatively associated with the proportion of non-operating income. The rationale is to determine whether the limited ability of analysts to predict earnings for Enron was an isolated incident or a pervasive one that applies to other firms. If pervasive, then another such disaster could occur without a warning from analysts. First, I examine the incentives for firms to resort more to non-operating income rather than focus on Operating income. Then I examine the association between analysts' forecast attributes and the ratio of nonoperating to operating income. The results show that non-operating income and operating income are negatively associated, suggesting that firms use non-operating income to manage their operating results. Also, analysts' forecast inaccuracy and dispersion are positively associated with the ratio of non-operating income to operating income. These results imply that analysts are generally inefficient in predicting earnings of firms with a high proportion of non-operating income.

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“…We control for the number of analysts (ANALYST) since Lys and Soo (1995) suggest that the number of analysts proxies for the intensity of competition in the market. Greater analyst following indicates greater ex ante incentives for analysts to make accurate forecasts and a better ex post information environment of the followed company.…”

Section: Empirical Modelsmentioning

confidence: 99%

Are Analysts Overoptimistic about the Prospects of Sin Firms?

Zhang¹,

Shin²

2017

IJFR

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We investigate the association between the bias and accuracy of consensus analysts' earnings forecasts and whether a firm is a sin firm or not. We measure analyst forecast bias as the difference between the consensus earnings forecast and the actual earnings, scaled by the stock price. We measure analyst forecast accuracy as the negative of the absolute value of the difference between the firms' forecasted and actual earnings, scaled by the stock price. We find a positive association between the level of forecast optimism and sin firm membership. We find a negative association between the level of forecast accuracy and sin firm membership. Overall, these results imply that analysts tend to issue over-optimistic and less accurate earnings forecasts on sin firms.

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Analysts' Forecast Precision as a Response to Competition

Cited by 208 publications

References 25 publications

Analysts’ Forecast Accuracy in Germany: The Effect of Different Accounting Principles and Changes of Accounting Principles

Analysts’ Forecast Accuracy in Germany: The Effect of Different Accounting Principles and Changes of Accounting Principles

The Proportion of Non-Operating Income, and Analysts’ Forecasts

Are Analysts Overoptimistic about the Prospects of Sin Firms?

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