Climate Disasters and Analysts’ Earnings Forecasts: Evidence from the United States

Lei Zhang and Kiridaran Kanagaretnam

European Accounting Review, 2025, vol. 34, issue 3, 1277-1304

Abstract: We examine the relationship between climate disasters and analysts’ earnings forecasts in the United States. We find that climate disasters are associated with deteriorated analyst forecast properties proxied by forecast errors and forecast dispersion. We reason that the volatility of return on assets and of cash flows, and lower financial statement comparability, are three potential channels through which climate disasters influence analyst forecast properties. We also find that this relationship is more pronounced for firms in climate-vulnerable industries. Results from the market reaction tests further support our main findings by showing that the stock market responds less strongly to positive earnings surprises during periods of high climate disasters. Our results are robust to a battery of sensitivity tests, including a two-stage least squares approach and a difference-in-differences specification. Overall, the results shed light on the association between climate disasters and analysts’ earnings forecasts, which has significant implications for academics, investors, and standard setters.

Date: 2025
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DOI: 10.1080/09638180.2024.2364785

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