Do Analysts Say Anything About Earnings Without Revising Their Earnings Forecasts?

57 Pages Posted: 8 Feb 2016

See all articles by Philip G. Berger

Philip G. Berger

University of Chicago - Booth School of Business

Charles (Chad) Ham

Washington University in St. Louis - John M. Olin Business School

Zachary Kaplan

Washington University in St. Louis - John M. Olin Business School

Date Written: February 6, 2016

Abstract

We identify a novel bias in analyst forecasts, after revision bias, which we identify by examining an analyst’s reports after his final earnings forecast of the quarter. We document that (i) qualitative predictions from the text of reports, (ii) share price target revisions, and (iii) revisions to next quarter’s earnings forecast predict error in the current quarter’s earnings forecast. Market returns are slow to impound the information in qualitative predictions and share price target revisions. Analysts are more likely to disseminate positive news after the current quarter’s final earnings forecast, consistent with analysts acting to maintain a beatable benchmark for managers. We argue our findings are consistent either with analysts acting to tip clients or with frictions limiting the frequency of quarterly forecast revisions. Our results demonstrate that the value of the current quarter’s earnings forecast to managers and investors distorts the flow of information into the forecast.

Keywords: sell-side analysts, analyst incentives, earnings forecasts, forecast bias

Suggested Citation

Berger, Philip G. and Ham, Charles and Kaplan, Zachary, Do Analysts Say Anything About Earnings Without Revising Their Earnings Forecasts? (February 6, 2016). Available at SSRN: https://ssrn.com/abstract=2728706 or http://dx.doi.org/10.2139/ssrn.2728706

Philip G. Berger

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-8687 (Phone)
773-834-4585 (Fax)

Charles Ham (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Zachary Kaplan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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