We present a two-stage model for the decision making process of …nancial analysts when issuing earnings forecasts. In the …rst stage, …nancial analysts perform a fundamental earnings analysis in which they are, potentially, subject to a behavioral bias. In the second stage analysts can adjust their earnings forecast in line with their strategic incentives. The paper analyzes this decision process throughout the forecasting period and explains the underlying drivers. Using quarterly earnings forecasts, we document that
JEL-classi…cations: G14; G17; G24We thank Bertrand Melenberg and seminar participants at Tilburg University for comments that improved the paper.y Catholic University of Leuven, AFI, Naamsestraat 69, 3000 Leuven, Belgium. Email: katrien.bosquet@econ.kuleuven.be, tel: (+) 32 (0)16 326675, fax: (+) 32 (0)16 326732.z CentER, TILEC, Tilburg University, Department of Finance, P.O. Box 90153, 5000LE Tilburg, The Netherlands. Email: p.c.degoeij@tilburguniversity.nl, phone: (+) 31 (0)13 4662083, fax: (+) 31 (0)13 4662875.x Catholic University of Leuven, AFI, Naamsestraat 69, 3000 Leuven, Belgium. Email: kristien.smedts@econ.kuleuven.be, tel: (+) 32 (0)16 326739, fax: (+) 32 (0)16 326732.