Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/laf/wpaper/cr1304.html
   My bibliography  Save this paper

We study whether financial analysts' concern for preserving good relationships with firms' managers motivates them to issue pessimistic or optimistic forecasts. Based on a dataset of one-yearahead EPS forecasts issued by 4 648 analysts concerning 241 French firms (1997-2007), we regress the analysts' forecast accuracy on its unintentional determinants. We then decompose the fixed effect of the regression and we use the firm-analyst pair effect as a measure of the intensity of the firm-analyst relationship. We find that a low (high) firm-analyst pair effect is associated with a low (high) forecast error. This observation suggests that pessimism and optimism result from the analysts' concern for cultivating their relationship with the firm's management

Author

Listed:
  • Anne-Gael Vaubourg
  • Valdete Berisha-Krasniqui

    (Larefi, Université Bordeaux IV)

  • Sébastien Galanti

    (LEO, Université d'Orléans)

  • Christophe Hurlin

    (LEO, Université d'Orléans)

  • Régis Breton

    (Centre de recherche de la Banque de France)

Abstract
No abstract is available for this item.

Suggested Citation

  • Anne-Gael Vaubourg & Valdete Berisha-Krasniqui & Sébastien Galanti & Christophe Hurlin & Régis Breton, 2013. "We study whether financial analysts' concern for preserving good relationships with firms' managers motivates them to issue pessimistic or optimistic forecasts. Based on a dataset of one-yearahead EPS," Larefi Working Papers 1304, Larefi, Université Bordeaux 4.
    • Handle: RePEc:laf:wpaper:cr1304
    as

    Download full text from publisher

    File URL: http://laf.u-bordeaux4.fr/RePEc/CR_13EFI04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David Burgstahler & Michael Eames, 2006. "Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5-6), pages 633-652.
    2. Cen, Ling & Hilary, Gilles & Wei, K. C. John, 2013. "The Role of Anchoring Bias in the Equity Market: Evidence from Analysts’ Earnings Forecasts and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 48(1), pages 47-76, February.
    3. Lauren Cohen & Andrea Frazzini & Christopher Malloy, 2010. "Sell‐Side School Ties," Journal of Finance, American Finance Association, vol. 65(4), pages 1409-1437, August.
    4. Lin, Hsiou-wei & McNichols, Maureen F., 1998. "Underwriting relationships, analysts' earnings forecasts and investment recommendations," Journal of Accounting and Economics, Elsevier, vol. 25(1), pages 101-127, February.
    5. Amitabh Dugar & Siva Nathan, 1995. "The Effect of Investment Banking Relationships on Financial Analysts' Earnings Forecasts and Investment Recommendations," Contemporary Accounting Research, John Wiley & Sons, vol. 12(1), pages 131-160, September.
    6. Greene, William, 2011. "Fixed Effects Vector Decomposition: A Magical Solution to the Problem of Time-Invariant Variables in Fixed Effects Models?," Political Analysis, Cambridge University Press, vol. 19(2), pages 135-146, April.
    7. Mehran, Hamid & Stulz, Rene M., 2007. "The economics of conflicts of interest in financial institutions," Journal of Financial Economics, Elsevier, vol. 85(2), pages 267-296, August.
    8. Womack, Kent L, 1996. "Do Brokerage Analysts' Recommendations Have Investment Value?," Journal of Finance, American Finance Association, vol. 51(1), pages 137-167, March.
    9. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    10. Patricia M. Dechow & Amy P. Hutton & Richard G. Sloan, 2000. "The Relation between Analysts' Forecasts of Long†Term Earnings Growth and Stock Price Performance Following Equity Offerings," Contemporary Accounting Research, John Wiley & Sons, vol. 17(1), pages 1-32, March.
    11. Clarke, Jonathan & Subramanian, Ajay, 2006. "Dynamic forecasting behavior by analysts: Theory and evidence," Journal of Financial Economics, Elsevier, vol. 80(1), pages 81-113, April.
    12. Gaétan Breton & Richard Taffler, 2001. "Accounting information and analyst stock recommendation decisions: a content analysis approach," Accounting and Business Research, Taylor & Francis Journals, vol. 31(2), pages 91-101.
    13. Barber, Brad M. & Lehavy, Reuven & Trueman, Brett, 2007. "Comparing the stock recommendation performance of investment banks and independent research firms," Journal of Financial Economics, Elsevier, vol. 85(2), pages 490-517, August.
    14. David Burgstahler & Michael Eames, 2006. "Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 633-652, June.
    15. Hayes, RM, 1998. "The impact of trading commission incentives on analysts' stock coverage decisions and earnings forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 36(2), pages 299-320.
    16. Fogarty, Timothy J. & Rogers, Rodney K., 2005. "Financial analysts' reports: an extended institutional theory evaluation," Accounting, Organizations and Society, Elsevier, vol. 30(4), pages 331-356, May.
    17. Breusch, Trevor & Ward, Michael B. & Nguyen, Hoa Thi Minh & Kompas, Tom, 2011. "On the Fixed-Effects Vector Decomposition," Political Analysis, Cambridge University Press, vol. 19(2), pages 123-134, April.
    18. Patricia C. O'Brien & Maureen F. Mcnichols & Lin Hsiou‐Wei, 2005. "Analyst Impartiality and Investment Banking Relationships," Journal of Accounting Research, Wiley Blackwell, vol. 43(4), pages 623-650, September.
    19. Chan, Louis K. C. & Karceski, Jason & Lakonishok, Josef, 2007. "Analysts' Conflicts of Interest and Biases in Earnings Forecasts," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 42(4), pages 893-913, December.
    20. Terence Lim, 2001. "Rationality and Analysts' Forecast Bias," Journal of Finance, American Finance Association, vol. 56(1), pages 369-385, February.
    21. Plümper, Thomas & Troeger, Vera E., 2007. "Efficient Estimation of Time-Invariant and Rarely Changing Variables in Finite Sample Panel Analyses with Unit Fixed Effects," Political Analysis, Cambridge University Press, vol. 15(2), pages 124-139, April.
    22. Andrew R. Jackson, 2005. "Trade Generation, Reputation, and Sell‐Side Analysts," Journal of Finance, American Finance Association, vol. 60(2), pages 673-717, April.
    23. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    24. Michael B. Clement & Senyo Y. Tse, 2005. "Financial Analyst Characteristics and Herding Behavior in Forecasting," Journal of Finance, American Finance Association, vol. 60(1), pages 307-341, February.
    25. Clement, Michael B., 1999. "Analyst forecast accuracy: Do ability, resources, and portfolio complexity matter?," Journal of Accounting and Economics, Elsevier, vol. 27(3), pages 285-303, July.
    26. Jacob, John & Lys, Thomas Z. & Neale, Margaret A., 1999. "Expertise in forecasting performance of security analysts," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 51-82, November.
    27. Robert Libby & James E. Hunton & Hun‐Tong Tan & Nicholas Seybert, 2008. "Retracted: Relationship Incentives and the Optimistic/Pessimistic Pattern in Analysts' Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 46(1), pages 173-198, March.
    28. Christopher J. Malloy, 2005. "The Geography of Equity Analysis," Journal of Finance, American Finance Association, vol. 60(2), pages 719-755, April.
    29. Harrison Hong & Jeffrey D. Kubik, 2003. "Analyzing the Analysts: Career Concerns and Biased Earnings Forecasts," Journal of Finance, American Finance Association, vol. 58(1), pages 313-351, February.
    30. John C. Easterwood & Stacey R. Nutt, 1999. "Inefficiency in Analysts' Earnings Forecasts: Systematic Misreaction or Systematic Optimism?," Journal of Finance, American Finance Association, vol. 54(5), pages 1777-1797, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Régis BRETON & Sébastien GALANTI & Christophe HURLIN & Anne-Gaël VAUBOURG, 2011. "Does the firm-analyst relationship matter in explaining analysts' earnings forecast errors?," LEO Working Papers / DR LEO 469, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    2. Ramnath, Sundaresh & Rock, Steve & Shane, Philip, 2008. "The financial analyst forecasting literature: A taxonomy with suggestions for further research," International Journal of Forecasting, Elsevier, vol. 24(1), pages 34-75.
    3. Beyer, Anne & Cohen, Daniel A. & Lys, Thomas Z. & Walther, Beverly R., 2010. "The financial reporting environment: Review of the recent literature," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 296-343, December.
    4. Anup Agrawal & Mark A. Chen, 2008. "Do Analyst Conflicts Matter? Evidence from Stock Recommendations," Journal of Law and Economics, University of Chicago Press, vol. 51(3), pages 503-537, August.
    5. Galanti, Sébastien & Vaubourg, Anne Gaël, 2017. "Optimism bias in financial analysts' earnings forecasts: Do commissions sharing agreements reduce conflicts of interest?," Economic Modelling, Elsevier, vol. 67(C), pages 325-337.
    6. Horton, Joanne & Serafeim, George & Wu, Shan, 2017. "Career concerns of banking analysts," Journal of Accounting and Economics, Elsevier, vol. 63(2), pages 231-252.
    7. Altınkılıç, Oya & Balashov, Vadim S. & Hansen, Robert S., 2019. "Investment bank monitoring and bonding of security analysts’ research," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 98-119.
    8. Régis Breton & Sébastien Galanti & Christophe Hurlin & Anne-Gaël Vaubourg, 2011. "Does soft information matter for financial analysts' forecasts? A gravity model approach," Working Papers halshs-00829908, HAL.
    9. Lauren Cohen & Andrea Frazzini & Christopher J. Malloy, 2012. "Hiring Cheerleaders: Board Appointments of "Independent" Directors," Management Science, INFORMS, vol. 58(6), pages 1039-1058, June.
    10. William Baker & Gregory Dumont, 2014. "Equity Analyst Recommendations: A Case for Affirmative Disclosure?," Journal of Consumer Affairs, Wiley Blackwell, vol. 48(1), pages 96-123, March.
    11. Cheolwoo Lee, 2013. "Analyst firm parent–subsidiary relationship and conflict of interest: evidence from IPO recommendations," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(3), pages 763-789, September.
    12. Oya Altınkılıç & Vadim S. Balashov & Robert S. Hansen, 2013. "Are Analysts' Forecasts Informative to the General Public?," Management Science, INFORMS, vol. 59(11), pages 2550-2565, November.
    13. Sanghyuk Byun & Kristin Roland, 2021. "Analyst bias and forecast consistency," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(4), pages 5403-5437, December.
    14. Huang, Lixin & Li, Wei & Wang, Hong & Wu, Liansheng, 2022. "Stock dividend and analyst optimistic bias in earnings forecast," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 643-659.
    15. Daniel Bradley & Sinan Gokkaya & Xi Liu, 2020. "Ties That Bind: The Value of Professional Connections to Sell-Side Analysts," Management Science, INFORMS, vol. 66(9), pages 4118-4151, September.
    16. Dambra, Michael & Field, Laura Casares & Gustafson, Matthew T. & Pisciotta, Kevin, 2018. "The consequences to analyst involvement in the IPO process: Evidence surrounding the JOBS Act," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 302-330.
    17. Tiana Lehmer & Ben Lourie & Devin Shanthikumar, 2022. "Brokerage trading volume and analysts’ earnings forecasts: a conflict of interest?," Review of Accounting Studies, Springer, vol. 27(2), pages 441-476, June.
    18. Rees, Lynn & Sharp, Nathan Y. & Wong, Paul A., 2017. "Working on the weekend: Do analysts strategically time the release of their recommendation revisions?," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 104-121.
    19. Hassan Tehranian & Mengxing Zhao & Julie L. Zhu, 2014. "Can Analysts Analyze Mergers?," Management Science, INFORMS, vol. 60(4), pages 959-979, April.
    20. Prokop, Jörg & Kammann, Benno, 2018. "The effect of the European Markets in Financial Instruments Directive on affiliated analysts’ earnings forecast optimism," Journal of Economics and Business, Elsevier, vol. 95(C), pages 75-86.

    More about this item

    Keywords

    financial analysts; earnings forecasts; soft information; panel regression;
    All these keywords.

    JEL classification:

    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:laf:wpaper:cr1304. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cyril Mesmer (email available below). General contact details of provider: https://edirc.repec.org/data/labrdfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.