I/B/E/S Reported Actual EPS and Analysts’ Inferred Actual EPS

56 Pages Posted: 30 Dec 2010 Last revised: 30 Jul 2014

See all articles by Lawrence D. Brown

Lawrence D. Brown

Temple University - Department of Accounting

Stephannie Larocque

University of Notre Dame - Mendoza College of Business

Date Written: December 1, 2012

Abstract

Users of I/B/E/S data generally act as if I/B/E/S reported actual earnings represent the earnings analysts were forecasting when they issued their earnings estimates. For example, when assessing analyst forecast accuracy, users of I/B/E/S data compare analysts’ forecasts of EPS with I/B/E/S reported actual EPS. I/B/E/S states that it calculates actuals using a “majority rule” indicating that its actuals often do not represent the earnings that all individual analysts were forecasting. We introduce a method for measuring analyst inferred actuals, and we assess how often I/B/E/S actuals do not represent analyst inferred actuals. We find that I/B/E/S reported Q1 actual EPS differs from analyst inferred actual Q1 EPS by at least one penny 39 percent of the time during our sample period, 36.5 percent of the time when only one analyst follows the firm (and hence this consensus forecast is based on the “majority rule”), and 50 percent of the time during the last three years of our sample period. We document two adverse consequences of this phenomenon. First, studies failing to recognize that I/B/E/S EPS actuals often differ from analyst inferred actuals are likely to obtain less accurate analyst earnings forecasts, smaller analyst earnings forecast revisions conditional on earnings surprises, greater analyst forecast dispersion, and smaller market reaction to earnings surprises than do studies adjusting for these differences. Second, studies failing to recognize that I/B/E/S EPS actuals often differ from analyst inferred actuals may make erroneous inferences.

Keywords: I/B/E/S reported actual EPS, analyst inferred actual EPS, accuracy, revisions, dispersion, and surprises

JEL Classification: M41

Suggested Citation

Brown, Lawrence D. and Larocque, Stephannie A., I/B/E/S Reported Actual EPS and Analysts’ Inferred Actual EPS (December 1, 2012). The Accounting Review 88 (3), May 2013, Fox School of Business Research Paper No. 14-017, Available at SSRN: https://ssrn.com/abstract=1732573 or http://dx.doi.org/10.2139/ssrn.1732573

Lawrence D. Brown

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Stephannie A. Larocque (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

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