Analysts' Accrual-Related Over-Optimism: Do Analyst Characteristics Play a Role?
Michael S. Drake
Brigham Young University - Marriott School
Linda A. Myers
University of Arkansas
Review of Accounting Studies, Vol. 16, No. 4, December 2011
Bradshaw, Richardson, and Sloan (2001) find that analyst forecast over-optimism is greater for firms with high accruals. This “accrual-related over-optimism” is generally interpreted as evidence that analyst forecasts do not fully incorporate predictable earnings reversals associated with high accruals. We investigate whether analyst experience, access to resources (brokerage size), and portfolio complexity moderate the relation between over-optimistic forecasts and high accruals. We demonstrate the robustness of accrual-related over-optimism to controls for cash flow and prior forecast errors. We find that accrual-related over-optimism is lower for analysts with greater general experience and for analysts following fewer firms but find only limited evidence of lower accrual-related over-optimism for analysts from larger brokerages and for analysts following fewer industries.
Number of Pages in PDF File: 48
Keywords: forecasts, analyst experience, brokerage size, analyst optimism, working capital accruals
JEL Classification: G10, M41Accepted Paper Series
Date posted: March 31, 2007 ; Last revised: November 29, 2009
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