Is Analyst Earnings Forecast Ability Only Firm-Specific?

Posted: 4 Nov 2009

See all articles by Lawrence D. Brown

Lawrence D. Brown

Temple University - Department of Accounting

Emad Mohammad

McMaster University - Accounting & Financial Management Services

Multiple version iconThere are 2 versions of this paper

Date Written: November 3, 2009

Abstract

The state of the art in the analyst forecasting literature is that analyst earnings forecast ability is only firm-specific (Chen, Francis, and Jiang (2005); Chen and Jiang (2006)). This view is based on Park and Stice’s (2000) finding of the absence of a “spillover” effect, i.e., investors do not consider an analyst’s earnings forecast ability regarding firm k when reacting to his earnings forecast revision for firm j. We re-examine the issue of whether or not earnings forecast ability is only firm-specific by introducing a broad measure of general ability defined as earnings forecast ability for all other firms the analyst follows. We show that a broad measure of general ability is incremental to firm-specific ability both for explaining earnings forecast accuracy in holdout periods and investor reactions to earnings forecast revisions. Our findings suggest that earnings forecast ability has a general aspect incremental to its firm-specific aspect.

Keywords: financial analysts, firm-specific forecast ability, general forecast ability, earnings forecast revisions, market reaction

JEL Classification: M43, J33, M41

Suggested Citation

Brown, Lawrence D. and Mohammad, Emad, Is Analyst Earnings Forecast Ability Only Firm-Specific? (November 3, 2009). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1499444

Lawrence D. Brown

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Emad Mohammad (Contact Author)

McMaster University - Accounting & Financial Management Services ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905-525-9140 ext. 27432 (Phone)
905-521-8995 (Fax)

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