Trading Incentives to Meet the Analyst Forecast

Posted: 2 Jul 2006

See all articles by Sarah E. McVay

Sarah E. McVay

University of Washington

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Vicki Wei Tang

Georgetown University - Robert Emmett McDonough School of Business

Abstract

We examine stock sales as a managerial incentive to help explain the discontinuity around the analyst forecast benchmark. We find that the likelihood of just meeting versus just missing the analyst forecast is strongly associated with subsequent managerial stock sales. Moreover, we provide evidence that managers manage earnings prior to just meeting the threshold and selling their shares. Finally, the relation between just meeting and subsequently selling shares does not hold for non-manager insiders, who arguably cannot affect the earnings outcome, and is weaker in the presence of an independent board, suggesting that good corporate governance mitigates this strategic behavior.

Keywords: analyst forecasts, earnings, managerial compensation, insider trading, corporate governance

JEL Classification: M41, M43, J33, G34, G29

Suggested Citation

McVay, Sarah E. and Nagar, Venky and Tang, Vicki Wei, Trading Incentives to Meet the Analyst Forecast. Review of Accounting Studies, December 2006. Available at SSRN: https://ssrn.com/abstract=912165

Sarah E. McVay (Contact Author)

University of Washington ( email )

Box 353200
Seattle, WA 98195-3200
United States

Venky Nagar

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

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Vicki Wei Tang

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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