Interactions between Analyst Earnings Forecasts and Management Earnings Forecasts

38 Pages Posted: 9 Feb 2012 Last revised: 26 Mar 2014

See all articles by Lawrence D. Brown

Lawrence D. Brown

Temple University - Department of Accounting

Ling Zhou

University of New Mexico

Date Written: August 9, 2012

Abstract

We examine interactions between analyst earnings forecasts and management earnings forecasts by investigating: (1) managers’ comparative efficiency relative to analysts at incorporating past earnings changes, accruals, stock returns and analyst-based earnings surprises into their earnings forecasts; (2) extent to which analyst inefficiencies in incorporating these four pieces of publicly available information into their earnings forecasts prompt managers to issue earnings forecasts; and (3) role of these four pieces of information at improving analyst forecasts after they have observed management forecasts. We show that: (1) unlike analysts, managers do efficiently incorporate information from past returns into their earnings forecasts; (2) analysts’ failure to incorporate past returns information into earnings forecasts is the primary trigger for managers to issue their own earnings forecasts; and (3) after management forecasts, analyst forecasts improve most significantly with respect to incorporating past returns information.

Keywords: analyst earnings forecasts, management earnings forecasts

JEL Classification: D82, G29, M4

Suggested Citation

Brown, Lawrence D. and Zhou, Ling, Interactions between Analyst Earnings Forecasts and Management Earnings Forecasts (August 9, 2012). Available at SSRN: https://ssrn.com/abstract=2002345 or http://dx.doi.org/10.2139/ssrn.2002345

Lawrence D. Brown

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States

Ling Zhou (Contact Author)

University of New Mexico ( email )

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

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