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Earnings Predictability and Bias in Analysts' Earnings Forecasts

TLDR
In this paper, the authors examine cross-sectional differences in the optimistic behavior of financial analysts and investigate whether the predic- tive accuracy of past information (e.g., time-series of earnings, past returns, etc.) is associated with the magnitude of the bias in analysts' earnings fore-casts.
Abstract
This paper examines cross-sectional differences in the optimistic behavior of financial analysts. Specifically, we investigate whether the predic- tive accuracy of past information (e.g., time-series of earnings, past returns, etc.) is associated with the magnitude of the bias in analysts' earnings fore- casts. We posit that there is higher demand for non-public information for firms whose earnings are difficult to accurately predict than for firms whose earnings can be accurately forecasted using public information. Assuming that opti- mism facilitates access to management's non-public information, we hypoth- esize that analysts will issue more optimistic forecasts for low predictability firms than for high predictability firms. Our results support this hypothesis.

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The Financial Reporting Environment: Review of the Recent Literature

TL;DR: The authors provide a framework for analyzing the three main decisions that shape the corporate information environment in a capital markets setting: (1) managers' voluntary reporting and disclosure decisions, (2) reporting and disclosures mandated by regulators, and (3) reporting decisions by third-party intermediaries.
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Management's Incentives to Avoid Negative Earnings Surprises

TL;DR: This paper found that firms with higher transient institutional ownership, greater reliance on implicit claims with their stakeholders, and higher value-relevance of earnings are more likely to meet or exceed expectations at the earnings announcement.
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Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts

TL;DR: The authors found that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status (large, prestigious) brokerage house, and that optimistic forecasts relative to the consensus increase the chances of favorable job separations.
Journal ArticleDOI

The financial reporting environment: Review of the recent literature

TL;DR: The authors review current research on the three main decisions that shape the corporate information environment in capital market settings: (1) managers' voluntary disclosure decisions, (2) disclosures mandated by regulators, and (3) reporting decisions by analysts.
References
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Firm characteristics and analyst following

TL;DR: This paper examined the major determinants of the number of analysts following a firm and proposed a simple model of analyst following and several firm characteristics are suggested that are likely to influence the extent of a firm's analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm.
Book

Analyst's forecasts as earnings expectations

TL;DR: This paper examined three composite analyst forecast of earnings per share as proxies for expected earnings and found that the most current forecast weakly dominates the mean and median forecasts in accuracy, and that forecast dates are more relevant for determining accuracy than individual error.
Posted Content

Self-selection and Analyst Coverage

TL;DR: In this paper, the authors examine implications of the conjecture that analysts announce recommendations and forecasts selectively, based upon whether their information about the firm is favorable, and provide empirical evidence on this alternative.
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