The Walk-Down to Beatable Forecasts: International Evidence

53 Pages Posted: 16 Nov 2017

See all articles by Hongping Tan

Hongping Tan

McGill University - Desautels Faculty of Management

Jiangfeng Wang

Shanxi University of Finance and Economics

Michael Welker

Queen's University - Smith School of Business

Zhang Ran

Peking University

Date Written: November 14, 2017

Abstract

We use the framework developed in Richardson et al. (2004) to identify country, firm and analyst characteristics that we expect to be associated with the prevalence of the analyst walk-down forecast pattern. Based on a large sample of 50,649 analysts covering 33,645 firms from 46 countries during 1992-2014, we find that the walk-down pattern positively correlates with country characteristics related to insider trading restrictions and equity sales. It also positively relates to the stock market reward for beating analyst forecasts, firm-level characteristics underlying management concerns with share prices after earnings announcements, and analysts’ incentives to cooperate with management. The effects of these factors on the walk-down pattern are more pronounced in countries with better media-coverage institutions. Overall, these findings suggest that capital market incentives affecting the communication between managers and analysts and the resulting analyst forecast bias involves various forces including a country’s institutional infrastructure, and firm and analyst characteristics.

Keywords: Analyst forecasts, Walk-down, Earnings guidance, Institutional infrastructure, Insider trading, Forecast bias

JEL Classification: G14, G15, G24

Suggested Citation

Tan, Hongping and Wang, Jiangfeng and Welker, Michael and Ran, Zhang, The Walk-Down to Beatable Forecasts: International Evidence (November 14, 2017). Available at SSRN: https://ssrn.com/abstract=3071419 or http://dx.doi.org/10.2139/ssrn.3071419

Hongping Tan (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Jiangfeng Wang

Shanxi University of Finance and Economics ( email )

No. 696, Wucheng Road
Taiyuan City, Shanxi 030006
China

Michael Welker

Queen's University - Smith School of Business ( email )

Kingston
Ontario, Ontario K7L 3N6
Canada

Zhang Ran

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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