49 Pages Posted: 31 Jul 2018 Last revised: 11 Sep 2019
Date Written: September 1, 2019
I/B/E/S removes 6% of one-quarter-ahead earnings forecasts from the calculation of the consensus forecast. This study examines managers’ role in these removals. We show optimistic forecasts are removed more often than pessimistic forecasts, after controlling for removal policies that I/B/E/S developed. The higher likelihood of the removal of optimistic forecasts is more pronounced when it allows managers to meet or beat the consensus, when managers have greater ability to influence I/B/E/S, or when costs of issuing management guidance are high. Additional evidence reinforces that forecast removals improve firms’ ability to meet or beat the consensus earnings. Our findings strongly suggest that managers influence I/B/E/S’s truncation of optimistic forecasts.
Keywords: Forecast removals, analyst forecasts, I/B/E/S, forecast optimism
JEL Classification: D62, D82, G14, M41
Suggested Citation: Suggested Citation