Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts' Earnings Forecasts

Posted: 7 Jan 2004

See all articles by Jeffery S. Abarbanell

Jeffery S. Abarbanell

University of North Carolina (UNC) at Chapel Hill - Finance Area

Reuven Lehavy

University of Michigan, Stephen M. Ross School of Business

Multiple version iconThere are 2 versions of this paper

Abstract

The extensive literature that investigates whether analysts' earnings forecasts are biased and/or inefficient has produced a history of conflicting evidence and no definitive answers to either question. This paper shows how two relatively small but statistically influential asymmetries in the tail and the middle of distributions of analysts' forecast errors can exaggerate or obscure evidence consistent with analyst bias and inefficiency, leading to inconsistent inferences. We identify an empirical link between firms' recognition of unexpected accruals and the presence of the two asymmetries in distributions of forecast errors that suggests that firm reporting choices play an important role in determining analysts' forecast errors.

JEL Classification: G29, M41, M43

Suggested Citation

Abarbanell, Jeffery S. and Lehavy, Reuven, Biased Forecasts or Biased Earnings? The Role of Reported Earnings in Explaining Apparent Bias and Over/Underreaction in Analysts' Earnings Forecasts. Journal of Accounting & Economics, Vol. 36, Nos. 1-3, pp. 105-146, December 2003. Available at SSRN: https://ssrn.com/abstract=485086

Jeffery S. Abarbanell

University of North Carolina (UNC) at Chapel Hill - Finance Area ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States

Reuven Lehavy (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-763-1508 (Phone)
734-936-0282 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
2,116
PlumX Metrics