Download or read book Broker analysts Earnings Forecast Bias and Their Trade boosting Incentive written by Chansog Kim and published by . This book was released on 1994 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Analysts Forecasts and Brokerage Firm Trading written by Paul J. Irvine and published by . This book was released on 2005 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using unique data on brokerage-firm trading volume, I examine whether analysts' earnings forecasts and recommendations generate trading volume for their brokerage firms. I find that analysts' forecasts differing from the consensus forecast generate signif icant brokerage-firm volume in the forecast stocks for two weeks after the forecast release date, consistent with analysts' forecasts affecting their brokers' commission revenue. I find that buy recommendations generate relatively more trading, both buyin g and selling, through the analyst's brokerage firm. I find no evidence that analysts' forecast errors, the difference between forecast earnings and actual earnings, increase brokerage-firm volume. Adding error to their forecasts does not seem to be an ef ficient way for analysts to generate trading. I conclude that analysts are more likely to respond to trading incentives through their recommendations rather than through biasing their forecasts.

Download or read book Analysts Incentives and Systematic Forecast Bias written by Senyo Y. Tse and published by . This book was released on 2008 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The likelihood that earnings announcements meet or beat analyst expectations differs substantially and systematically across firms. Prior research explores managers incentives to meet analyst expectations. In this paper, we examine analysts incentives to issue systematically biased earnings forecasts and thereby influence the likelihood that firms report good earnings news. We first document that forecast biases are systematically different, as large firms and firms with low forecast dispersion - labeled high-information firms - are more likely to report positive earning surprises, while small firms and firms with large forecast dispersion - labeled low-information firms - tend to have optimistically biased forecasts that often lead to negative earnings surprises. We also show that potential financing needs induce more optimistic forecasts for low-information firms, but this effect is greatly mitigated for high-information firms. We find that career concerns help explain analysts' systematic forecast bias. An analyst's career longevity is enhanced by issuing pessimistic forecasts for high-information firms and optimistic forecasts for low-information firms. Optimistic forecast bias for high-financing-need firms has no consequence for an analyst's career longevity, but optimistic bias for low-financing-need firms hurts. Our results suggest that career concerns contribute to a systematic pattern of forecasting that aligns with managerial preferences.

Download or read book Incentives Or Irrationality International Evidence from the Impact of Individualism on Analyst Forecast Bias written by Claudia Qi and published by . This book was released on 2014 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a unique dataset that identifies the locations of 19,832 financial analysts covering 21,885 firms from 49 countries during 1996-2013, we find that individualism of analysts' country of residence is negatively associated with their earnings forecast optimism and positively associated with their forecast accuracy. Using multiple proxies for economic incentives and cognitive biases, we find that individualism affects analyst forecast optimism and accuracy through the economic incentives that analysts face, rather than their cognitive biases (irrationality). Our results highlight the importance for regulators and investors to factor in culture values when battling against biased analyst research.

Download or read book Journal of Accounting Economics written by and published by . This book was released on 1999-11 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Bias in Analysts Earnings Forecasts written by Seung-Woog (Austin) Kwag and published by . This book was released on 2003 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: If either economic incentives or psychological phenomena cause the bias in analysts' forecasts to persist long enough, it would be potentially discoverable and exploitable by investors. quot;Exploitationquot; in this context implies that investors, through examination of historical forecasting performance, can more or less reliably estimate the direction and extent of bias, and impute unbiased estimates for themselves, given analysts' forecasts. The absence of persistence in forecast errors would suggest that analysts' own behavior ultimately quot;self-correctsquot; within a time frame that eliminates the possibility that the patterns could be exploited by investors. We use two look-back methods that capture salient features of analysts' past forecasting behavior to form quintile portfolios that describe the range of analysts' forecasting behavior. Parametric and nonparametric tests are performed to determine whether the two portfolio formation methods provide predictive power with respect to subsequent forecast errors. The findings support a conclusion that analysts' behaviors in both optimistic and pessimistic extremes do not entirely self-correct, leaving open the possibility that investors may find historical forecast errors useful in making inferences about current forecasts.

Download or read book The Effect of Trading Volume on Analysts Forecast Bias written by Anne Beyer and published by . This book was released on 2010 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study models the interaction between a sell-side analyst and risk-averse investors. It derives an analyst's optimal earnings forecast and investors' optimal trading decisions in a setting where the analyst's payoff depends on the trading volume the forecast generates as well as on the forecast error. In the fully separating equilibrium, we find that the analyst biases the forecast upward (downward) if his private signal reveals relatively good (bad) news.The model predicts that: (i) the analyst biases the forecast upward more often than downward and the forecast is on average optimistic; (ii) the magnitude of the analyst's bias is increasing in the per share benefit from trading volume he receives; and (iii) the analyst's expected squared forecast error may increase in the precision of his private information. Finally, we characterize the circumstances under which the (rational) analyst acts as if he overweights or underweights his private information.

Download or read book Biased Forecasts or Biased Earnings The Role of Reported Earnings in Explaining Apparent Bias and Over Underreaction in Analysts Earnings Forecasts written by Jeffery S. Abarbanell and published by . This book was released on 2012 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We demonstrate the role of three empirical properties of cross-sectional distributions of analysts' forecast errors in generating evidence pertinent to three important and heretofore separately analyzed phenomena studied in the analyst earnings forecast literature: purported bias (intentional or unintentional) in analysts' earnings forecasts, forecaster over/underreaction to information in prior realizations of economic variables, and positive serial correlation in analysts' forecast errors. The empirical properties of interest include: the existence of two statistically influential asymmetries found in the tail and the middle of typical forecast error distributions, the fact that a relatively small number of observations comprise these asymmetries and, the unusual character of the reported earnings benchmark used in the calculation of the forecast errors that fall into the two asymmetries that is associated with firm recognition of unexpected accruals. We discuss competing explanations for the presence of these properties of forecast error distributions and their implications for conclusions about analyst forecast rationality that are pertinent to researchers, regulators, and investors concerned with the incentives and judgments of analysts.Previously titled quot;Biased Forecasts or Biased Earnings? The Role of Earnings Management in Explaining Apparent Optimism and Inefficiency in Analysts' Earnings Forecastsquot.

Download or read book The Psychology of World Equity Markets written by Werner Franciscus Marcel De Bondt and published by Edward Elgar Publishing. This book was released on 2005 with total page 654 pages. Available in PDF, EPUB and Kindle. Book excerpt: Divided into two volumes, the first volume reviews the scientific debate between leading behavioral scientists and proponents of rational markets and rational economic man, the second volume finds anomalies in financial decision-making and in the behavior of equity markets that are interpreted in the context of empirical, and theoretical research.

Download or read book The Impact of Trading Commission Incentives on Stock Coverage and Earnings Forecast Decisions by Security Analysts written by Rachel Mary Hayes and published by . This book was released on 1996 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Analyst Forecast Momentum written by Paul J. Irvine and published by . This book was released on 2017 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: A great number of academic papers evaluate the potential for incentive-driven bias in sell-side analysts' earnings forecasts. Yet bias does not necessarily invalidate a forecast, nor does it impinge on its relative quality. We find that analysts' forecasts are optimistic relative to recently introduced fundamental alternatives. However, analysts' forecasts have lower absolute deviation and the information in their earnings forecasts has predictive value for near-term stock returns. We propose the latter result as a previously unidentified form of earnings momentum. We find that this form of earnings momentum is even stronger for quarterly forecasts than annual forecasts, suggesting that analysts' have particularly strong incentives directed to forecasting quarterly earnings. Investing with optimistic analysts is a rational investment strategy, rather than a misguided one, when the investment horizon is less than one year.

Download or read book A Theory of Analysts Forecast Bias written by Murugappa (Murgie) Krishnan and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we provide an equilibrium explanation for the observed optimism in analysts' earnings forecasts. Our analysis provides theoretical support to the widely held notion that analysts engage in earnings optimism to gain access to management's private information. We show that a strategic analyst, who is motivated by improving the combined accuracy of his forecasts, issues a biased initial forecast to extract information from management, but issues unbiased forecasts subsequently. The management, on the other hand, provides more access because this optimistic bias reduces the proprietary costs associated with disclosure at the margin. An important element of our model is the assumption that analysts also have private information relevant to assessing firm value. Despite rational expectations about analyst bias, analysts' private information cannot be fully unravelled by other agents due to the noise introduced by the diversity in analysts' incentives.

Download or read book The Effect of Issuing Biased Earnings Forecasts on Analysts Access to Management and Survival written by Bin Ke and published by . This book was released on 2006 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to Regulation Fair Disclosure. Analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers. The effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard-to-predict earnings. The above results hold regardless of whether a brokerage firm has investment banking business or not. These results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management's private information.

Download or read book Understanding Analysts Reactions to Earnings Management written by Yuyan Guan and published by . This book was released on 2006 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis examines the determinants of analysts' reactions to firms' earnings management. I present a model showing that analysts revise their forecasts according to their forecast errors revealed by earnings announcements and reporting biases embedded in reported earnings. The model further demonstrates that the relationship between forecast revisions and reporting biases can be affected by analysts' forecasting ability, the inherent uncertainty of whether reporting biases have occurred, as well as analysts' incentives. To empirically test the model's prediction regarding analysts' forecasting ability, I use analysts' firm-specific experience, size of their brokerage firm, and the number of industries they follow as proxies. Consistent with the model's prediction, I provide evidence showing that well-experienced analysts adjust more for earnings management while analysts following a greater number of industries adjust less for earnings management. Sensitivity analysis using analyst's historical firm-specific forecast accuracy as an alternative measure of forecasting ability further supports the hypothesis that analysts with better forecasting ability adjust more for earnings management. Moreover, analysts adjust less for earnings management when the inherent uncertainty of the reporting bias is greater. Specifically, analysts adjust less for earnings management when: (1) the past volatility of discretionary accruals is high; and (2) the firm has a marked propensity to smooth earnings. There is little evidence that affiliated analysts adjust less for earnings management than unaffiliated analysts. However, analysts adjust more for earnings management in the post-Reg FD period than in the pre-Reg FD period, which is consistent with Regulation FD achieving its objective of strengthening analysts' incentives to issue unbiased forecasts.

Download or read book Managerial Behavior and the Bias in Analysts Earnings Forecasts written by Lawrence D. Brown and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managerial behavior differs considerably when managers report quarterly profits versus losses. When they report profits, managers seek to just meet or slightly beat analyst estimates. When they report losses, managers do not attempt to meet or slightly beat analyst estimates. Instead, managers often do not forewarn analysts of impending losses, and the analyst's signed error is likely to be negative and extreme (i.e., a measured optimistic bias). Brown (1997 Financial Analysts Journal) shows that the optimistic bias in analyst earnings forecasts has been mitigated over time, and that it is less pronounced for larger firms and firms followed by many analysts. In the present study, I offer three explanations for these temporal and cross-sectional phenomena. First, the frequency of profits versus losses may differ temporally and/or cross-sectionally. Since an optimistic bias in analyst forecasts is less likely to occur when firms report profits, an optimistic bias is less likely to be observed in samples possessing a relatively greater frequency of profits. Second, the tendency to report profits that just meet or slightly beat analyst estimates may differ temporally and/or cross-sectionally. A greater tendency to 'manage profits' (and analyst estimates) in this manner reduces the measured optimistic bias in analyst forecasts. Third, the tendency to forewarn analysts of impending losses may differ temporally and/or cross-sectionally. A greater tendency to 'manage losses' in this manner also reduces the measured optimistic bias in analyst forecasts. I provide the following temporal evidence. The optimistic bias in analyst forecasts pertains to both the entire sample and the losses sub-sample. In contrast, a pessimistic bias exists for the 85.3% of the sample that consists of reported profits. The temporal decrease in the optimistic bias documented by Brown (1997) pertains to both losses and profits. Analysts have gotten better at predicting the sign of a loss (i.e., they are much more likely to predict that a loss will occur than they used to), and they have reduced the number of extreme negative errors they make by two-thirds. Managers are much more likely to report profits that exactly meet or slightly beat analyst estimates than they used to. In contrast, they are less likely to report profits that fall a little short of analyst estimates than they used to. I conclude that the temporal reduction in optimistic bias is attributable to an increased tendency to manage both profits and losses. I find no evidence that there exists a temporal change in the profits-losses mix (using the I/B/E/S definition of reported quarterly profits and losses). I document the following cross-sectional evidence. The principle reason that larger firms have relatively less optimistic bias is that they are far less likely to report losses. A secondary reason that larger firms have relatively less optimistic bias is that their managers are relatively more likely to report profits that slightly beat analyst estimates. The principle reason that firms followed by more analysts have relatively less optimistic bias is that they are far less likely to report losses. A secondary reason that firms followed by more analysts have relatively less optimistic bias is that their managers are relatively more likely to report profits that exactly meet analyst estimates or beat them by one penny. I find no evidence that managers of larger firms or firms followed by more analysts are relatively more likely to forewarn analysts of impending losses. I conclude that cross-sectional differences in bias arise primarily from differential 'loss frequencies,' and secondarily from differential 'profits management.' The paper discusses implications of the results for studies of analysts forecast bias, earnings management, and capital markets. It concludes with caveats and directions for future research.

Download or read book Bias in European Analysts Earnings Forecasts written by Stan Beckers and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Forecasting company earnings is a difficult and hazardous task. In an efficient market where analysts learn from past mistakes, there should be no persistent and systematic biases in consensus earnings accuracy. Previous research has already established how some (single) individual-company characteristics systematically influence forecast accuracy. So far, however, the effect on consensus earnings biases of a company's sector and country affiliation combined with a range of other fundamental characteristics has remained largely unexplored. Using data for 1993-2002, this article disentangles and quantifies for a broad universe of European stocks how the number of analysts following a stock, the dispersion of their forecasts, the volatility of earnings, the sector and country classification of the covered company, and its market capitalization influence the accuracy of the consensus earnings forecast.

Download or read book Analysts Conflict of Interest and Biases in Earnings Forecasts written by Louis Kuo Chi Chan and published by . This book was released on 2003 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Analysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflict of interest and their incentives to adjust strategically forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises, the market's response to surprises and forecast revisions, and in the predictability of non-negative surprises. Further confirmation is based on subsamples where conflicts of interest are more pronounced, including growth stocks and stocks with consecutive non-negative surprises; however shifts are less notable in international markets