Industry sensitivity to external forces, and the industry-level information advantage of analysts over managers when forecasting earnings

42 Pages Posted: 22 Sep 2015 Last revised: 30 Nov 2020

See all articles by Ashiq Ali

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Dan Amiram

Tel Aviv University - Coller School of Management

Alon Kalay

Michigan State University - Eli Broad College of Business

Gil Sadka

University of Texas at Dallas

Date Written: November 15, 2020

Abstract

This paper examines whether analysts have an industry-level information advantage over managers when forecasting earnings. We argue that such an advantage is more likely to exist in industries where firm performance is more sensitive to industry-level external economic forces. We find that for such firms, the relative earnings forecast accuracy of analysts compared to managers is larger. We further find that managers of such firms provide fewer and less precise (e.g., range rather than point estimate) forecasts, and that this association is more pronounced in firms with higher analyst following. Collectively, these findings suggest that analysts have industry-level information advantage over managers when forecasting earnings for industries with certain characteristics.

Keywords: Management earnings forecasts, analyst earnings forecasts, analysts’ industry expertise, analysts’ industry-level information advantage over managers, industry sensitivity risk

Suggested Citation

Ali, Ashiq and Amiram, Dan and Kalay, Alon and Sadka, Gil, Industry sensitivity to external forces, and the industry-level information advantage of analysts over managers when forecasting earnings (November 15, 2020). Columbia Business School Research Paper No. 15-86, Available at SSRN: https://ssrn.com/abstract=2663611 or http://dx.doi.org/10.2139/ssrn.2663611

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://https://jindal.utdallas.edu/faculty/ashiq-ali

Dan Amiram (Contact Author)

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

Alon Kalay

Michigan State University - Eli Broad College of Business

632 Bogue St
East Lansing, MI 48824
United States

Gil Sadka

University of Texas at Dallas ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

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