The Timing of Analysts' Earnings Forecasts

Abstract

Existing literature assumes that the order and timing of analysts' earnings forecasts are determined exogenously. However, analysts choose when to issue their forecasts. This study develops a model that endogenizes the timing decision of analysts and analyzes their equilibrium timing strategies. In the model, analysts face a trade-off between the timeliness and the precision of their forecasts. The model introduces a timing game with two analysts, derives and analyzes its unique pure strategies equilibrium, and provides new empirical predictions about the precision and timing of analysts' forecasts. The equilibrium has one of two patterns: either the times of the analysts' forecasts cluster, or there is a separation in the times of the forecasts. The less informed and less similar the analysts are, the more likely it is that they forecast at different points in time. All else equal, analysts with a higher precision of initial private information tend to forecast earlier, and analysts with a higher learning ability tend to forecast later.

The financial reporting environment: Review of the recent literature

“…For example, mandating additional disclosure can reduce risk-sharing (e.g., Hirshleifer, 1971;Verrecchia, 1982;Diamond, 1985;Dye, 1990) and disclosure costs can reduce social welfare (e.g., Verrecchia, 1983). Moreover, mandating additional disclosure can reduce other market participants' information production, thus reducing the overall informativeness of market prices (e.g., Diamond, 1985;Fischer and Stocken, 2008;Guttman, 2010). Also, more transparency can be undesirable in agency settings (e.g., Christensen and Feltham, 2000;Gigler and Hemmer, 2004) and can facilitate collusion among agents.…”

“…72 Analysts' strategic timing of their forecast release has obtained only limited attention in the theoretical literature, however. To the best of our knowledge, Gul and Lundholm (1995) and Guttman (2010) are the only two models of analysts' decision of when to issue a forecast. Gul and Lundholm (1995) focus on the effect of timing decisions on the dispersion of analysts' forecasts.…”

“…Investors that receive the analysts' reports before they are publicly released (see, e.g., Irvine et al, 2007;Guttman, 2010) possess private information and may trade upon it. 70 68 Lerman and Livnat (forthcoming) observe that the newly required 8-K items constitute over half of all filings and that most firms disclose the required items within the new shortened period (four business days).…”

Analyst reputation and the issuance of disaggregated earnings forecasts to I/B/E/S

“…However, the investing community will not view the mimicking strategy as valuable. Academic research and anecdotal evidence suggests the value of analysts stems not only from the quality of their outputs but also from the speed with which they communicate relevant information to their clients relative to other analysts (Cooper et al 2001;Lowengard 2006;Guttman 2008). forecasts between two consecutive earnings announcement dates, with the first (second) coming during the first (second) half of this period. 9 This results in 240,178 analyst-firm-year observations.…”

Analysts' Consensus and Target Price Accuracy: A Study in Latin America

“…When considering the context of the analysts' actions, Guttman (2010) states that when obtaining different private or relatively similar information in terms of accuracy (both initially and over time), analysts issue their forecast simultaneously, or at the same moment they would have issued them if other analysts had not been present, broadening the discussion of tendency to consensus outside the time factor. BAR, Rio de Janeiro, v. 14, n. 4, art.…”