Do Analysts Who Understand Accounting Conservatism Exhibit Better Forecasting Performance?

33 Pages Posted: 3 Aug 2017

See all articles by Jay Heon Jung

Jay Heon Jung

University of London

Sonya S. Lim

DePaul University - Department of Finance

Jinhan Pae

Korea University Business School (KUBS)

Choong-Yuel Yoo

KAIST College of Business

Date Written: July/August 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: asymmetric timely loss recognition, career outcome, conditional conservatism, equity analyst, forecasting performance, stock recommendation

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? (July/August 2017). Journal of Business Finance & Accounting, Vol. 44, Issue 7-8, pp. 953-985, 2017, Available at SSRN: https://ssrn.com/abstract=3012793 or http://dx.doi.org/10.1111/jbfa.12254

Jay Heon Jung (Contact Author)

University of London

Senate House
Malet Street
London, WC1E 7HU
United Kingdom

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

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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