The Integrity of Financial Analysts: Evidence from Asymmetric Responses to Earnings Surprises

Purpose The purpose of this paper is to detect quantitatively the existence of anchoring bias among financial analysts on the Tunisian stock market. Both non-parametric and parametric methods are used. Design/methodology/approach Two studies have been conducted over the period 2010–2014. A first analysis is non-parametric, based on observations of the sign taking by the surprise of result announcement according to the evolution of earning per share (EPS). A second analysis uses simple and multiple linear regression methods to quantify the anchor bias. Findings Non-parametric results show that in the majority of cases, the earning per share variations are followed by unexpected earnings surprises of the same direction, which verify the hypothesis of an anchoring bias of financial analysts to the past benefits. Parametric results confirm these first findings by testing different psychological anchors’ variables. Financial analysts are found to remain anchored to the previous benefits and carry out insufficient adjustments following the announcement of the results by the companies. There is also a tendency for an over/under-reaction in changes in forecasts. Analysts’ behavior is asymmetrical depending on the sign of the forecast changes: an over-reaction for positive prediction changes and a negative reaction for negative prediction changes. Originality/value The evidence provided in this paper largely validates the assumptions derived from the behavioral theory particularly the lessons learned by Kaestner (2005) and Amir and Ganzach (1998). The authors conclude that financial analysts on the Tunisian stock market suffer from anchoring, optimism, over and under-reaction biases when announcing the earnings.

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Comprehensive Income: which potential effects on firms' performance evaluation and users' decision process?

FINANCIAL REPORTING ◽

10.3280/fr2015-002003 ◽

2016 ◽

pp. 55-94

Author(s):

Pier Luigi Marchini ◽

Carlotta D'Este

Keyword(s):

Performance Evaluation ◽

Decision Process ◽

Financial Analysts ◽

Listed Companies ◽

Financial Statement ◽

Comprehensive Income ◽

Other Comprehensive Income ◽

Gains And Losses ◽

The Impact

The reporting of comprehensive income is becoming increasingly important. After the introduction of Other Comprehensive Income (OCI) reporting, as required by the 2007 IAS 1-revised, the IASB is currently seeking inputs from investors on the usefulness of unrealized gains and losses and on the role of comprehensive income. This circumstance is of particular relevance in code law countries, as local pre-IFRS accounting models influence financial statement preparers and users. This study aims at investigating the role played by unrealized gains and losses reporting on users' decision process, by examining the impact of OCI on the Italian listed companies RoE ratio and by surveying a sample of financial analysts, also content analysing their formal reports. The results show that the reporting of comprehensive income does not affect the financial statement users' decision process, although it statistically affects Italian listed entities' performance.

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