Prior Uncertainty, Analyst Bias, and Subsequent Abnormal Returns

Ackert, Lucy F.; Athanassakos, George

doi:10.1111/j.1475-6803.1997.tb00248.x

Cited by 100 publications

(71 citation statements)

References 6 publications

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“…The notion of earnings being less predictable has been captured empirically in several ways: standard deviation of weekly abnormal returns (Lim, 2001), forecast dispersion (Ackert and Athanassakos, 1997), and degree of international diversification (Duru and Reeb, 2002). The empirical evidence in those studies is consistent with analysts' forecasts being more optimistic if the proxies applied indicate that the firms' earnings are less predictable.…”

Section: Analysis Of the Analyst's Forecasts And Forecast Revisionsmentioning

confidence: 90%

“…(2) the high frequency of downward revisions (e.g., Scherbina, 2004); (3) decreasing bias in analysts' forecasts over the forecast horizon (e.g., Richardson et al, 2004); and (4) more pronounced optimism in analysts' forecasts for firms whose earnings are less predictable (e.g., Lim, 2001;Ackert and Athanassakos, 1997;Duru and Reeb, 2002). Also, the core premise of the paper -that analysts anticipate earnings management when issuing a forecast -has empirical support (e.g., Burgstahler and Eames, 2003;Liu, 2004).…”

Section: Introductionmentioning

confidence: 99%

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Financial analysts’ forecast revisions and managers’ reporting behavior

Beyer

2008

Journal of Accounting and Economics

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Section: Analysis Of the Analyst's Forecasts And Forecast Revisionsmentioning

confidence: 90%

Section: Introductionmentioning

confidence: 99%

Financial analysts’ forecast revisions and managers’ reporting behavior

Beyer

2008

Journal of Accounting and Economics

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“…Huberts and Fuller (1995) also believe that brokerage firms and their analysts have incentives to produce optimistic forecasts in order to please company management. Similar to Ackert and Athanassakos (1997), they hypothesize and document that the most optimistic forecasts are observed for companies whose earnings have been difficult to predict. They conjecture this finding is because investors have more difficulty detecting this bias and therefore will not punish analysts' and damage reputations.…”

Section: Theory and Hypothesesmentioning

confidence: 90%

The Effect of Perceived Uncertainty on Analysts’ Recommendations and Earnings Forecasts

Young¹

2009

Review of Behavioral Finance

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Prior literature has found that as uncertainty in a firms information environment increases, optimism increases in equity analysts' earnings forecasts. The studies suggest an economic incentive explanation, commonly called the management-relations hypothesis. However, there is conflicting evidence that managers would prefer pessimistic forecasts and encourage analysts to ''walk-down'' their forecasts to prevent negative earnings surprises. To test these contradictory findings, this study uses an experimental setting to remove economic incentives from the analyst's decision process and isolate the cause of observed bias in analysts' reports. The results of the experiment show that an increase in the perceived uncertainty of the forecasting task results in significantly lower relative optimism in analysts' earnings forecasts. This finding is consistent with a negativity hypothesis and the managementrelations hypothesis extolled in the empirical research. The findings also show that relative forecast optimism bias is positively related to the level of analysts' buy/sell recommendations consistent with more recent findings that suggest that analysts use motivated reasoning (the tendency to process information in a manner that supports one's goal) in their judgments of forecasted earnings and recommendations. Together, these results suggest that analysts consider and use financial information differently depending on their decision goal.

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“…Prior related research presents evidence on a relation between forecast uncertainty and optimism in longer-horizon forecasts (Ackert and Athanassakos 1997;Das et al 1998;Lim 2001). With longer-horizon forecasts, managers prefer analysts to be overly optimistic (see the discussion in Sect.…”

Section: Earnings Forecast Uncertainty and Forecast Optimismmentioning

confidence: 99%

Analyst information precision and small earnings surprises

Bissessur

Veenman

2016

Rev Account Stud

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This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty, and we present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as suspected of managing earnings.

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Prior Uncertainty, Analyst Bias, and Subsequent Abnormal Returns

Cited by 100 publications

References 6 publications

Financial analysts’ forecast revisions and managers’ reporting behavior

Financial analysts’ forecast revisions and managers’ reporting behavior

The Effect of Perceived Uncertainty on Analysts’ Recommendations and Earnings Forecasts

Analyst information precision and small earnings surprises

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