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We evaluate the performance of financial analysts versus naïve models in making long-term earnings forecasts. Long-term earnings forecasts are generally defined as third-, fourth-, and fifth-year earnings forecasts. We find that for the fourth and fifth years, analysts' forecasts are no more accurate than naïve random walk (RW) forecasts or naïve RW with economic growth forecasts. Furthermore, naïve model forecasts contain a large amount of incremental information over analysts' long-term forecasts in explaining future actual earnings. Tests based on subsamples show that the performance of analysts' long-term forecasts declines relative to naïve model forecasts for firms with high past earnings growth and low analyst coverage. Furthermore, a model that combines a naïve benchmark (last year's earnings) with the analyst long-term earnings growth forecast does not perform better than analysts' forecasts or naïve model forecasts. Our findings suggest that analysts' long-term earnings forecasts should be used with caution by researchers and practitioners. Also, when analysts' earnings forecasts are unavailable, naïve model earnings forecasts may be sufficient for measuring long-term earnings expectations.

Financial analysts act as crucial conduits of information between firms and stakeholders. However, comparatively little is known about how these information intermediaries evaluate the believability and importance of corporate disclosures. We argue that a firm’s level of managerial discretion, or latitude of executive action, acts as a cue for financial analysts, which helps them interpret and respond to voluntary management earnings forecasts. Our study provides strong, robust evidence that financial analysts find management forecasts significantly less believable in low-discretion than in high-discretion environments, and therefore tend to be much less responsive to these forecasts. We also show that managerial discretion is especially impactful on analysts’ responses in those circumstances where analysts are typically most uncertain about how to interpret management forecasts.

We highlight two mechanisms of limited attention for expert information intermediaries, i.e., analysts, and the effects of such limited attention on the market price discovery process. We approach analysts' limited attention from the perspective of day-to-day arrival of information and processing of tasks. We examine the attention-limiting role of competing tasks (number of earnings announcements and forecasts for portfolio firms) and distracting events (number of earnings announcements for non-portfolio firms) in analysts' forecast accuracy and the effects of such, on the subsequent price discovery process. Our results show that competing tasks worsen analysts' forecast accuracy, and competing task induced limited attention delays the market price adjustment process. On the other hand, distracting events can improve analysts' forecast accuracy and accelerate market price adjustments when such events relate to analysts' portfolio firms through industry memberships.

This study aims to examine whether Chinese firms increase their concerns about analysts’ earnings forecasts following the split-share structure reform (SSR) in 2005, which removed trading restrictions on approximately 70% of the shares of listed firms.

Using data from 2002 to 2019, the authors empirically test the association between meeting or beating analysts’ earnings expectations and the implementation of SSR.

The authors find that firms are more inclined to meet analysts’ earnings expectations after the introduction of SSR. Further analysis shows that firms guide analysts to walk their forecasts down by manipulating third-quarter earnings, suggesting enhanced value relevance between analysts’ forecasts and third-quarter earnings management in the postreform period.

The findings reveal an undesirable side effect of SSR and suggest that policymakers and regulators should consider and carefully manage the complex relationships between firms and analysts.

In contrast to prior studies that predominantly focus on the positive effects of the reform, this study reveals the side effects of SSR and provides new evidence on the mechanisms of meeting or beating analysts’ earnings expectations.

Using a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whether the market rewards meeting or beating analyst earnings expectations (MBE).

The authors use an event study methodology to capture market reactions to MBE.

The authors document a stock return premium for beating analyst forecasts by a wide margin. However, there is no stock return premium for firms that meet or just beat analyst forecasts, suggesting that the market is skeptical of earnings management by these firms. This market underreaction is more pronounced for firms with weak external monitoring. Further analysis shows that meeting or just beating analyst forecasts is indicative of superior future financial performance. The authors do not find firms using earnings management to meet or just beat analyst forecasts.

The authors provide evidence of market underreaction to meeting or just beating analyst forecasts, with the market's over-skepticism of earnings management being a plausible mechanism for this phenomenon.

The findings of this study are informative to researchers, market participants and regulators concerned about the impact of analysts and earnings management and interested in detecting and constraining managers' earnings management.

The authors provide new insights into how the market reacts to MBE by showing that the market appears to focus on using meeting or just beating analyst forecasts as an indicator of earnings management, while it does not detect managed MBE. Meeting or just beating analyst forecasts is commonly used as a proxy for earnings management in the literature. However, the findings suggest that it is a noisy proxy for earnings management.

The purpose of this paper is to report on research concerning financial analysts’ activity surrounding profit warnings issued by listed companies in the four largest European stock exchanges (France, Germany, the Netherlands and the UK). The authors address three aspects of analysts’ forecasts: ex-post accuracy of forecasts, earnings forecast revisions, and consensus forecast dispersion. The goal of the analysis is to study the differences between financial analysts’ behavior within different regulatory settings, namely common law vs civil law countries.

The sample is composed of 1,330 profit warnings issued by listed European firms during the period 2000-2010. The authors apply event study methodology and OLS regressions to highlight the impact of the legal information environment on analysts’ reactions.

The empirical analysis reveals that analyst activity depends on each country’s legal context factors, such as the legal information environment of the firm and the index of investor protection. Accordingly, the authors show that both a richer legal information environment and stronger country-level investor protection substantially improve analyst accuracy around profit warnings.

The sample is only composed on firms from four European countries owing to a lack of firms from other European countries that disclosed PW during the period 2000-2010. It would be pertinent to conduct future research dealing with an international sample from different continents.

The paper contributes to a deeper understanding of analysts’ reactions to profit warnings. The findings can influence firms’ reporting practices and lead to future regulation policies.

This work is the first to examine the relationship between profit warning releases and the behavior of financial analysts in a pan-European context where there are different institutional levels of investor protection.

This paper aims to examine the effect of audit quality of consolidated financial statements on the accuracy of analysts’ earnings forecasts from the viewpoint of users of financial statements.

This paper investigates the effect of dependence on the work of other auditors on error in analysts’ earnings forecasts based on samples from 2011 to 2012 (the period since implementation of the International Financial Reporting Standards in Korea). In addition, this paper examines the effects of use of Big 4 auditors, use of auditors with industry expertise and the proportion of overseas subsidiaries in relation to all subsidiaries on the association between dependence on the work of other auditors and error in analysts’ earnings forecasts.

This paper finds a positive relation between dependence on the work of other auditors and error in analysts’ earnings forecasts, suggesting that more dependence on the work of other auditors decreases the quality of the audit of consolidated financial statements; thus, to the extent that low-quality audits decrease reporting reliability, analysts’ forecasts are less likely to be accurate. This paper also finds that the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is weakened when the principal auditor is a Big 4 auditor or one with industry expertise, because such auditors provide higher-quality audit services. However, the positive relationship between dependence on the work of other auditors and error in analysts’ earnings forecasts is further strengthened in cases where the proportion of overseas subsidiaries to all subsidiaries is higher. These results suggest that the complexity of the consolidation process increases as the proportion of overseas subsidiaries increases.

The findings are useful in analyzing the effects of adoption of the New ISA, implemented in 2014, which does not allow the division of audit responsibilities between principal auditors and other auditors. This paper also provides insights for regulators and practitioners to improve the auditor appointment system in the future.

The purpose of this paper is to investigate the relationship between voluntary disclosure of intangibles and financial analysts’ earnings forecasts properties.

Disclosures about intangible assets were hand-collected through content analysis of annual reports of a sample of US non-financial firms, while analysts’ earnings forecasts properties were collected from Bloomberg Professional database. The authors relied on correlation and multivariate regression analyses to test the research hypotheses.

The results show that increased intangible disclosures affect analysts’ earnings forecasts accuracy, dispersion, and favourable consensus recommendations. However, this effect varies according to the nature of intangible assets.

The results may be of interest to different market participants such as corporate managers, financial analysts, and standards setting bodies that recently published guidelines on voluntary disclosure of intangibles.

This study develops a new comprehensive index to measure the content of narrative disclosures about a large number of intangibles, such as human, structural, and relational assets. The findings contribute to the current debate on the value-relevance of narrative disclosures on intangibles to investors and financial analysts.

The purpose of this paper is to explore the effect of firm’s deviant strategy on analysts’ earnings forecasts and further examine the effects of firm’s information transparency and environmental uncertainty on these relationships from information asymmetry perspective.

The sample includes listed firms on Shanghai and Shenzhen Stock Exchange during the period 2007-2013.

The results indicate that firms’ deviant strategies have effects on analysts’ earnings forecasts, in particular, firms with extreme strategies have less analysts following, larger forecast error and dispersion compared with firms following industry norms. Moreover, information transparency and environmental uncertainty have effects on the relationship between strategic deviance and analysts’ earnings forecasts.

The empirical results of this paper provide strong evidence that strategy information is an important source of information for analysts’ earnings forecasts, which shows that analysts should pay attention to not only financial information but also the strategic information, especially when the information is related to strategic choice. In addition, it is necessary for investors to focus on strategic information to have a better understanding on financial information of enterprises and make better investment decisions.

The findings of this study indicate that corporate strategic deviance has an effect on analysts’ earnings forecasting behavior. This study enriches research studies on corporate strategy and external stakeholders and complements related research on analysts’ earnings forecasts from strategic perspective and information asymmetry perspective.

The purpose of this paper is to investigate the impact of the introduction of New Zealand's statutory‐backed continuous disclosure regime enacted in December 2002 on the differential disclosure behaviour of New Zealand firms with good and bad earnings news.

This paper examines the level of information disclosure, analyst forecast error and forecast dispersion, abnormal returns and abnormal volumes for firms with good and bad news earnings announcements in a sample period surrounding reforms to New Zealand's continuous disclosure regime.

The authors find evidence that the pre‐announcement information flow was poorer prior to the reform for bad news firms compared to good news firms, in terms of greater analysts' forecast dispersion and a larger abnormal price reaction to the actual earnings announcement. Second, the reform reduced the asymmetry of information flow between good and bad news firms, with the differences in analysts' forecast dispersion and abnormal price reaction dissipating after the reform.

The findings suggest that the reforms to New Zealand's continuous disclosure regime have reduced managers' propensity to withhold bad news and improved the quality of information provided to investors by firms with bad earnings news.

This study improves our understanding of the impact of disclosure reform on the behaviour of managers in a market with relatively low liquidity and less litigation risk in comparison to larger and more developed markets.