Analysts' Awareness of Systematic Bias in Management Earnings Forecasts: Empirical Evidence from Japan

26 Pages Posted: 21 Dec 2006

See all articles by Koji Ota

Koji Ota

Musashi University - Department of Finance

Date Written: December 20, 2006

Abstract

The effectively mandatory provision of management earnings forecasts (MEF) is an unique feature of Japan's financial disclosure system. The first objective of this study is to identify the determinants of systematic bias in MEF using a sample of nearly 25,000 one-year-ahead earnings forecasts announced by Japanese firms at the beginning of a fiscal year over the period 1979-1999. The examination of ex post management forecast errors shows that financial distress, firm growth, firm size, and prior forecast errors are all associated with bias in MEF. The second objective of this study is to investigate whether analysts are aware of these factors that are related to systematic bias in MEF. The examination of analysts' forecasts issued subsequent to the announcement of management forecasts reveals that analysts take these factors into consideration when they issue their own earnings forecasts. These findings indicate that analysts are well aware of the determinants of systematic bias in MEF and make correct adjustments that lead to the higher accuracy of analysts' forecasts than management forecasts.

Keywords: Management forecasts, Systematic bias, Analysts' awareness

JEL Classification: M41, M47, G14, G29, G33, G31

Suggested Citation

Ota, Koji, Analysts' Awareness of Systematic Bias in Management Earnings Forecasts: Empirical Evidence from Japan (December 20, 2006). Available at SSRN: https://ssrn.com/abstract=952696 or http://dx.doi.org/10.2139/ssrn.952696

Koji Ota (Contact Author)

Musashi University - Department of Finance ( email )

1-26-1 Toyotamakami
Nerima Tokyo, 1768534
Japan
+81-359843754 (Phone)

HOME PAGE: http://homepage2.nifty.com/koji_ota/

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