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Investor Uncertainty Judgments and Perceptions of Analyst Herding: The Role of Motivated Reasoning

Advances in Accounting Behavioral Research

ISBN: 978-1-83867-346-8, eISBN: 978-1-83867-345-1

Publication date: 30 September 2019

Abstract

Although prior research documents that analysts sometimes herd their forecasts, very few studies investigate how investors’ judgments are influenced by their perceptions of the likelihood of analyst herding. I conduct an experimental study to investigate the conditions under which investors’ assessments of uncertainty about future earnings are influenced by their perceptions of the likelihood of analyst herding. As expected, and consistent with motivated reasoning, the results show that the temporal order of analyst forecasts influences investors’ estimates of the likelihood of analyst herding and investors’ uncertainty judgments when analyst forecasts are preference-inconsistent but not when analyst forecasts are preference-consistent. This study provides a potential explanation for the mixed findings of prior research in regard to investors’ reactions to the likelihood of analyst herding. In addition, this study extends research on investors’ credulity by providing evidence that motivated reasoning and skepticism may serve as a mechanism that contributes to that credulity.

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Acknowledgements

Acknowledgments

This chapter is based on Chapter 3 of my dissertation, prepared at the University of Illinois at Urbana-Champaign. I am indebted to my committee members, Brooke Elliott (Chair) and Susan Krische, for their support and guidance throughout this project, and Kevin Jackson and Scott Weisbenner for their valuable suggestions and comments. I also thank Fatima Alali, Betty Chavis, Mahamood Hassan, Wei Jiang, Vijay Karan, Hung-Yuan (Richard) Lu, Vivek Mande, I-Ling Wang and workshop participants at California State University, Fullerton, the AAA Western Region Meeting, and the AAA Annual Meeting for their helpful comments. I appreciate the financial support of the Deloitte Foundation Doctoral Fellowship, the Marvin and Nancy Dennis Doctoral Fellowship, the University of Illinois Doctoral Fellowship, and the MAG Fund at California State University, Fullerton.

Citation

Keshk, W. (2019), "Investor Uncertainty Judgments and Perceptions of Analyst Herding: The Role of Motivated Reasoning", Advances in Accounting Behavioral Research (Advances in Accounting Behavioural Research, Vol. 22), Emerald Publishing Limited, Leeds, pp. 67-86. https://doi.org/10.1108/S1475-148820190000022005

Publisher

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Emerald Publishing Limited

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