Analyst Forecast Properties, Financial Distress, and Business Risk
26 Pages Posted: 22 May 2001
Date Written: May 2001
Abstract
This study examines the validity of using analyst forecast properties to proxy for information quality. The results suggest that dispersion and error measures are strongly related to financial distress and business risk. Firms with losses, earnings declines, and volatile earnings have a strong tendency towards high dispersion and error. Furthermore, forecast biases are predictable. Firms with low dispersion or error measures have relatively little forecast optimism, while firms with high dispersion or error measures have high amounts of forecast optimism. This finding is driven by loss firms, which tend to have greater dispersion and error. Caution should thus be employed when using dispersion and error measures to proxy for the quality of the information environment.
Keywords: Analysts, information quality, information asymmetry, forecasts
JEL Classification: G29, M41, D82
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Detecting Earnings Management: A New Approach
By Patricia Dechow, Amy P. Hutton, ...
-
A Review of the Earnings Management Literature and its Implications for Standard Setting
-
Errors in Estimating Accruals: Implications for Empirical Research
By Daniel W. Collins and Paul Hribar
-
The Economic Implications of Corporate Financial Reporting
By John R. Graham, Campbell R. Harvey, ...
-
The Economic Implications of Corporate Financial Reporting
By John R. Graham, Campbell R. Harvey, ...
-
On the Association between Voluntary Disclosure and Earnings Management
By Ron Kasznik
-
Performance Matched Discretionary Accrual Measures
By S.p. Kothari, Andrew J. Leone, ...
-
The Quality of Accruals and Earnings: The Role of Accrual Estimation Errors
By Ilia D. Dichev and Patricia Dechow