Do Analysts Who Understand Accounting Conservatism Exhibit Better Forecasting Performance?

Journal of Business Finance and Accounting, Forthcoming

54 Pages Posted: 6 Mar 2015 Last revised: 5 Apr 2017

See all articles by Jay Jung

Jay Jung

City, University of London - Cass Business School

Sonya S. Lim

DePaul University - Department of Finance

Jinhan Pae

Korea University Business School (KUBS)

Choong-Yuel Yoo

KAIST College of Business

Date Written: April 4, 2017

Abstract

This study investigates the performance of analysts when they match the asymmetric timeliness of their earnings forecast revisions (i.e., asymmetric forecast timeliness) with the asymmetric timeliness of firms’ reported earnings (i.e., asymmetric earnings timeliness). We find that better timeliness-matching analysts produce more accurate earnings forecasts and elicit stronger market reactions to their forecast revisions. Further, better timeliness-matching analysts issue less biased earnings forecasts, more profitable stock recommendations and have more favorable career outcomes. Overall, our results indicate that analysts’ ability to incorporate conditional conservatism into their earnings forecasts is an important reflection of analyst expertise and professional success.

Keywords: Conditional Conservatism; Asymmetric Timely Loss Recognition; Equity Analyst; Forecasting Performance; Stock Recommendation; Career Outcome

Suggested Citation

Jung, Jay Heon and Lim, Sonya S. and Pae, Jinhan and Yoo, Choong-Yuel, Do Analysts Who Understand Accounting Conservatism Exhibit Better Forecasting Performance? (April 4, 2017). Journal of Business Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2574532 or http://dx.doi.org/10.2139/ssrn.2574532

Jay Heon Jung

City, University of London - Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

HOME PAGE: http://www.jayheonjung.com

Sonya S. Lim

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

HOME PAGE: http://sites.google.com/site/sonyalim/

Jinhan Pae

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea

Choong-Yuel Yoo (Contact Author)

KAIST College of Business ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul, 02455
Korea, Republic of (South Korea)

HOME PAGE: http://www.business.kaist.edu/faculty/cyoo

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