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Do analysts who understand accounting conservatism exhibit better forecasting performance?
Jul 08, 2017
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Journal of Business Finance and Accounting
Volume 44, Issue 7-8, July/August 2017, Pages 953-985
 

Jung, J.H.(a), Lim, S.S. (b), Pae, J. (c), Yoo, C.-Y.(d)
a Cass Business School, City, University of London, London, United Kingdom
b DePaul University, Department of Finance, Chicago, IL, United States
c Korea University, Business School, Seoul, South Korea
d Korea Advanced Institute of Science and Technology (KAIST) College of Business, South Korea
http://onlinelibrary.wiley.com/doi/10.1111/jbfa.12254/abstract
http://dx.doi.org/10.1111/jbfa.12254
  

Abstract
This study investigates the performance of analysts when they match the asymmetric timeliness of their earnings forecast revisions (i.e., asymmetric forecast timeliness) with the asymmetric timeliness of firms’ reported earnings (i.e., asymmetric earnings timeliness). We find that better timeliness-matching analysts produce more accurate earnings forecasts and elicit stronger market reactions to their forecast revisions. Further, better timeliness-matching analysts issue less biased earnings forecasts, more profitable stock recommendations and have more favorable career outcomes. Overall, our results indicate that analysts’ ability to incorporate conditional conservatism into their earnings forecasts is an important reflection of analyst expertise and professional success. © 2017 John Wiley & Sons Ltd


Author keywords
asymmetric timely loss recognition
career outcome
conditional conservatism
equity analyst
forecasting performance
stock recommendation
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