Nickels Not Pennies: Granularity in Analysts’ EPS Forecasts and Forecast Revisions

Posted: 11 Aug 2009

See all articles by Ling Zhou

Ling Zhou

University of New Mexico

Date Written: June 11, 2009

Abstract

This paper extends the study of Herrmann and Thomas (2005) on granularity in analyst forecasts at multiples of nickels and finds that forecasts at multiples of nickels are more optimistic, and induce weaker market responses. Granularity in analyst forecasts combined with managers’ incentive to meet forecasts help explain discontinuity in actual EPS at multiples of nickels documented in Thomas (1989). In addition, this paper documents a hitherto unrecorded phenomenon that forecast revisions also exhibit granularity at multiples of nickels and shows that analysts are more likely to make nickel forecast revisions when they lack precise information. Forecasts that revise prior forecasts by multiples of nickels are less accurate.

Keywords: analyst forecast accuracy, rounding, analyst forecast bias, analyst forecast revisions, market response

JEL Classification: D84, M41, G14, G29

Suggested Citation

Zhou, Ling, Nickels Not Pennies: Granularity in Analysts’ EPS Forecasts and Forecast Revisions (June 11, 2009). Journal of Accounting, Auditing and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1445419

Ling Zhou (Contact Author)

University of New Mexico ( email )

107 Humanitites Building
Albuquerque, NM 87131-1221
United States
(505)277-0335 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,165
PlumX Metrics