Analysts' Accrual-Related Over-Optimism: Do Analyst Characteristics Play a Role?

48 Pages Posted: 31 Mar 2007 Last revised: 29 Nov 2009

See all articles by Michael S. Drake

Michael S. Drake

Brigham Young University - Marriott School

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Date Written: November 2009

Abstract

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.

Keywords: forecasts, analyst experience, brokerage size, analyst optimism, working capital accruals

JEL Classification: G10, M41

Suggested Citation

Drake, Michael S. and Myers, Linda A., Analysts' Accrual-Related Over-Optimism: Do Analyst Characteristics Play a Role? (November 2009). Review of Accounting Studies, Vol. 16, No. 4, December 2011. Available at SSRN: https://ssrn.com/abstract=1408745

Michael S. Drake

Brigham Young University - Marriott School ( email )

United States

Linda A. Myers (Contact Author)

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

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