Analyst Revenue Forecasts and Firm Revenue Misstatements

Forthcoming at European Accounting Review

53 Pages Posted: 13 Sep 2021

See all articles by Ting‐Chiao Huang

Ting‐Chiao Huang

Monash University

Stephanie Hairston

Georgia Southern University - School of Accountancy

Date Written: September 5, 2021

Abstract

Earnings and revenue are ranked as the two most important performance measures reported to outsiders (Graham et al., 2005). However, prior literature primarily focuses on management’s incentives and willingness to manipulate earnings to meet earnings benchmarks. Increasingly, analysts are releasing forecasts of financial items in addition to aggregate earnings, with revenue forecasts being the most common. We posit that management may be under similar pressure to meet revenue forecasts given their impact on firm value. As such, we examine whether analyst revenue forecasts aggravate revenue misstatements. We find that revenue misstatements are positively associated with revenue forecasts and the association is more pronounced when beating revenue forecasts is more important. We also show that several characteristics of revenue forecasts aggravate management pressure and thus the likelihood of revenue misstatements. Further analyses suggest that firms use accruals management rather than real earnings management to inflate reported revenue. Our findings may be useful to academics, investors, and regulators in examining the relationship between analyst revenue forecasts and firms’ financial reporting behavior.

Keywords: Analyst; Revenue forecast; Revenue restatement; Revenue misstatement.

JEL Classification: G10; G24; M41.

Suggested Citation

Huang, Ting-Chiao and Hairston, Stephanie, Analyst Revenue Forecasts and Firm Revenue Misstatements (September 5, 2021). Forthcoming at European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3920739

Ting-Chiao Huang (Contact Author)

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Stephanie Hairston

Georgia Southern University - School of Accountancy ( email )

Statesboro, GA 30460-8151
United States

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