Forecast Bias in Analysts’ Initial Coverage: The Influence of Firm ESG Disclosures

Mohammadali Fallah, Sulei Han and Le Zhao ()
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Mohammadali Fallah: Department of Finance, Real Estate and Business Law, Craig School of Business, California State University, Fresno, CA 93720, USA
Sulei Han: Sykes College of Business, The University of Tampa, Tampa, FL 33606, USA
Le Zhao: Department of Finance, Real Estate and Business Law, Craig School of Business, California State University, Fresno, CA 93720, USA

JRFM, 2025, vol. 18, issue 10, 1-26

Abstract: This study examines analyst forecast bias during the initial coverage of a firm using a sample of 631,660 firm-quarter analyst forecasts from 2007 to 2022. Estimating OLS regressions with firm, analyst, and time fixed effects, we find that analysts’ initial EPS forecasts are closer to the consensus than ongoing coverage forecasts. Our results suggest that ESG considerations influence analysts’ initial assessments of the firm. Higher ESG disclosure scores attenuate this tendency to issue consensus-aligned forecasts, particularly for analysts with a more favorable assessment of the firms than the consensus. We observe this effect when EPS forecast dispersion is high, indicating that ESG disclosures influence analysts’ initial assessments when uncertainty and disagreement among analysts are high. Our findings are robust to restricting the sample to small brokerage firms where analyst coverage assignments are more likely to be exogenous. We also find that analysts issue more optimistic price target estimates for firms with higher ESG disclosure scores.

Keywords: financial analysts; earnings forecasts; initial coverage; ESG disclosures; forecast bias; target prices (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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