Do analysts predict managed or unmanaged earnings?

Qazi Ghulam Mustafa Qureshi (), Yves Mard () and Francois Aubert ()
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Qazi Ghulam Mustafa Qureshi: Department of Finance, Auditing, Accounting and Control, ICN Business School
Yves Mard: Universite Clermont Auvergne
Francois Aubert: Universite Clermont Auvergne

Eurasian Business Review, 2024, vol. 14, issue 2, No 8, 527-545

Abstract: Abstract This study examines the analysts’ intentions on predicting the earnings forecasts, whether analysts predict managed or unmanaged earnings or in other words, predict accurate forecast or optimist/pessimist forecasts. This study introduces ex-post forecasts as the better proxy to explain analysts’ intentions on earnings forecasts. The important contribution to this line of research is the use of ex-post forecasts in a comparative study of ex-ante and ex-post forecasts. This study covers 3,294 US firm-year observations from 2006 to 2018 and uses various empirical analyses including system GMM to eliminate endogenous effects. Our results suggest that analysts predict the managed earnings to be accurate and to minimize earnings surprises. Results also suggest brokers’ actual estimates closely reflect managed earnings and forecast errors from managed earnings are distributed closer to zero than forecast errors from unmanaged earnings. This study provides value to investors in making investment decisions and for policymakers to provide stringent standards to minimize earnings management and any inside trading.

Keywords: Analysts forecasts; Earnings management; Unmanaged earnings; Discretionary accruals; Real earnings management (search for similar items in EconPapers)
JEL-codes: M1 M4 M41 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s40821-023-00250-7

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