International Diversification and Analysts' Forecast Accuracy and Bias

Abstract

We investigate the association between corporate international diversification and the accuracy and bias of consensus analysts' earnings forecasts. We find that greater corporate international diversification is associated with less accurate and more optimistic forecasts. Our results suggest that international diversification reflects unique dimensions of forecasting difficulty that are not captured in previously identified determinants. This evidence suggests that as firms become more geographically diversified, forecasting their earnings becomes more complex.

On the political economy of national tax revenue forecasts: evidence from OECD countries

“…As mentioned by Goeminne et al (2008), the sign of the coefficient of P OP s,t is not unambiguous. Rising complexity -and therefore more difficult forecasts -leads to overoptimism in tax projections (Duru and Reeb, 2002;Goeminne et al, 2008). This causes a positive effect of population.…”

Optimism bias in financial analysts' earnings forecasts: Do commissions sharing agreements reduce conflicts of interest?

“…Analysts are more prone to issuing optimistic forecasts about firms with negative earnings. Following Duru and Reeb (2002), Heflin et al (2003), Herrmann et al (2008), Coen et al (2009) and Hovakimian and Saenyasiri (2010), we construct two dummy variables. EP SN EGAT IV Ei, t equals 1 if the actual earnings of firm i at t are negative and 0 otherwise.…”

“…We include several variables in the regression to account for these characteristics. First, because the availability of public information is enhanced for large firms and firms that are followed by a large number of analysts, we introduce the variables COV ER i,t , which is the number of analysts who follow firm i at t (Duru and Reeb, 2002, Herman et al, 2008, Hovakimian and Saenyasiri, 2010, Dubois et al, 2014 and SIZE i,t , the log of firm i's market capitalization at t (Duru and Reeb, 2002, Herman et al, 2008, Hovakimian and Saenyasiri, 2010. The signs of β 6 and β 7 are expected to be negative.…”

Are Analysts Overoptimistic about the Prospects of Sin Firms?

“…We measure bias (BIAS) consistent with prior research (Duru and Reeb (2002);Lang, Lins and Miller (2003); Herrmann, Hope and Thomas (2008)). The variable BIAS is the difference between the latest consensus earnings forecast and the actual earnings, scaled by the stock price.…”