Does the firm-analyst relationship matter in explaining analysts' earnings forecast errors?

Régis Breton (), Sébastien Galanti, Christophe Hurlin and Anne-Gaël Vaubourg ()
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Anne-Gaël Vaubourg: Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux

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Abstract: 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.

Keywords: panel regression; financial analysts; earnings forecasts; soft information; panel regression. (search for similar items in EconPapers)
Date: 2013-08-16
New Economics Papers: this item is included in nep-bec, nep-for, nep-lam, nep-ltv and nep-neu
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Working Paper: Does the firm-analyst relationship matter in explaining analysts' earnings forecast errors? (2011)
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