Analysts’ Earnings Forecasts and Technological Conditions in the Firm's Investment Environment

Journal of Contemporary Accounting and Economics, Forthcoming

46 Pages Posted: 24 Jan 2015

See all articles by David Lambert

David Lambert

London Business School

Zoltan P. Matolcsy

University of Technology Sydney (UTS) - School of Accounting

Anne Wyatt

Deakin University

Date Written: January 23, 2015

Abstract

This paper examines the association between sell-side analysts’ short and long-term EPS forecasts, growth rates, and forecast errors, and measures of technological conditions in the firm’s industry investment environment. Our contention is analysts’ industry knowledge includes an understanding of the technological conditions to which the firms’ investments are exposed and how these technological conditions within industries map into future earnings. We predict and find as the horizon lengthens that interactions between technological conditions and current EPS are significantly associated with analysts’ EPS and growth forecasts. The long horizon EPS growth results align with Jung, Shane and Yang (2012) who suggest analysts’ growth forecasts reflect efforts to evaluate the firms’ long-run prospects. We also present results for analysts’ forecast errors that suggest analysts’ technological knowledge is associated with optimistically biased long-term forecasts. Our evidence suggests analysts’ industry knowledge includes the implications of technological conditions within industries for firms’ future earnings.

Keywords: Technological conditions within industries, Investment opportunities, Analysts’ forecasts

JEL Classification: M41, M21, L10, D83

Suggested Citation

Lambert, David and Matolcsy, Zoltan Paul and Wyatt, Anne, Analysts’ Earnings Forecasts and Technological Conditions in the Firm's Investment Environment (January 23, 2015). Journal of Contemporary Accounting and Economics, Forthcoming , Available at SSRN: https://ssrn.com/abstract=2554194

David Lambert

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Zoltan Paul Matolcsy

University of Technology Sydney (UTS) - School of Accounting ( email )

P.O. Box 123
Broadway NSW 2007
Australia

Anne Wyatt (Contact Author)

Deakin University

75 Pigdons Road
Victoria, Victoria 3216
Australia

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