Do analysts who understand accounting conservatism exhibit better forecasting performance?

Abstract

This study investigates the performance of analysts when they match the asymmetric timeliness of their earnings forecast revisions (i.e., asymmetric forecast timeliness) with the asymmetric timeliness of firms’ reported earnings (i.e., asymmetric earnings timeliness). We find that better timeliness‐matching analysts produce more accurate earnings forecasts and elicit stronger market reactions to their forecast revisions. Further, better timeliness‐matching analysts issue less biased earnings forecasts, more profitable stock recommendations and have more favorable career outcomes. Overall, our results indicate that analysts’ ability to incorporate conditional conservatism into their earnings forecasts is an important reflection of analyst expertise and professional success.

Analyst Characteristics and the Level of Critical Perception of Goodwill Accounting

“…), may improve an analyst's performance (Hugon and Muslu ; Jung et al. ). However, whether or not a high level of scepticism is beneficial to a financial analyst cannot be concluded on the basis of this investigation, but is a worthy subject for another study.…”

Information gain in alternative data: Evidence from e‐commerce sales and analyst earnings forecasts

“…First, this research extends the literature on the driving factors of analyst behavior. Extensive studies show that financial and nonfinancial information improves analyst forecast behavior (Anderson et al, 2022; Dhaliwal et al, 2012; Jung et al, 2017; Muslu et al, 2019). However, the role of alternative data, the product of the emerging digital economy and information era, in analyst behavior is ignored.…”

How well do analysts really understand asymmetric cost behaviour?

“…Securities analysts gather, process and communicate information relevant to the assessment of firms’ fundamental value, thereby playing an important role in reducing capital market frictions (Abarbanell and Lehavy, 2003; Amiram et al ., 2018). However, there is evidence that analysts react inefficiently to publicly available accounting information, such as that contained in prior accruals (e.g., Drake and Myers, 2011; Jung et al ., 2017). Similarly, research has considered the extent to which analysts understand cost behaviour in general (Kim and Prather‐Kinsey, 2010), and how the incidence of asymmetric cost behaviour (‘ACB’) affects analysts task complexity, and thus forecast accuracy (Weiss, 2010) and bias (Ciftci et al ., 2016).…”