Inferring Analysts' Information About Changes in Earnings Components*

31 Pages Posted: 17 Sep 2004

See all articles by David A. Guenther

David A. Guenther

University of Oregon - Department of Accounting

Philip B. Shane

College of William & Mary; Monash University; Monash University - Department of Accounting

David P. Weber

University of Connecticut - Department of Accounting

Date Written: 15 September 2004

Abstract

This paper develops a technique to infer the accuracy of analysts' forecasts of different components of earnings when databases contain forecasts of only bottom line (or limited component) earnings forecasts. We focus our analysis on three components - sales, operating profit percentage, and effective tax rates - and find that larger changes in all three components are associated with larger contemporaneous forecast errors, but that the change in operating profit percentage appears to be the most difficult to forecast. This difficulty in forecasting changes in the operating profit percentage appears to be concentrated in those observations in which net income decreases from the prior year.

Keywords: analysts, earnings, forecasts, components, accuracy

JEL Classification: M41, C53, G10, G20

Suggested Citation

Guenther, David A. and Shane, Philip B. and Weber, David P., Inferring Analysts' Information About Changes in Earnings Components* (15 September 2004). Available at SSRN: https://ssrn.com/abstract=591701 or http://dx.doi.org/10.2139/ssrn.591701

David A. Guenther

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
541-346-5384 (Phone)

Philip B. Shane (Contact Author)

College of William & Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Monash University - Department of Accounting ( email )

H3.43, Building H, Level 3
Monash University Caulfiled
Melbourne, VIC 3145
Australia

David P. Weber

University of Connecticut - Department of Accounting ( email )

School of Business
Storrs, CT 06269-2041
United States

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