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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

Anne-Gael Vaubourg (), Valdete Berisha-Krasniqui, Sébastien Galanti, Christophe Hurlin and Régis Breton ()
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Valdete Berisha-Krasniqui: Larefi, Université Bordeaux IV
Christophe Hurlin: LEO, Université d'Orléans

No 1304, Larefi Working Papers from Larefi, Université Bordeaux 4

Keywords: financial analysts; earnings forecasts; soft information; panel regression (search for similar items in EconPapers)
JEL-codes: C59 D84 G17 G24 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2013-04
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