Analysts’ Incentives to Overweight Management Guidance When Revising Their Short-Term Earnings Forecasts

2010 ◽  
Vol 85 (5) ◽  
pp. 1617-1646 ◽  
Author(s):  
Mei Feng ◽  
Sarah McVay
Keyword(s):  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Investment Banking ◽  
Equity Offerings ◽  
Short Term ◽  
Management Guidance ◽  
Banking Business

ABSTRACT: We document that, when revising their short-term earnings forecasts in response to management guidance, analysts wishing to curry favor with management weight the guidance more heavily than predicted, based on the credibility and usefulness of the guidance. This overweighting of guidance is present prior to equity offerings and other events that could lead to investment banking business. Although analysts sacrifice their forecast accuracy by overweighting management guidance, they appear to benefit, on average, by subsequently gaining the underwriting business for their banks. Thus, while analysts wishing to please managers are optimistic in their long-term earnings forecasts, they take their cue from management when determining their short-term earnings forecasts.

scholarly journals Earnings Forecast Optimism For U.S. Vs. Non-U.S. Firms

2013 ◽  
Vol 12 (11) ◽  
pp. 1491
Author(s):  
David Salerno ◽  
Nathan Jeppson
Keyword(s):  
Task Complexity ◽  
Financial Analysts ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
International Investment ◽  
Growth Potential ◽  
Earnings Forecast ◽  
Level Measurement ◽  
Investment Opportunities

This study examines whether financial analysts are more optimistic in their earnings forecasts for non-U.S. firms than they are for U.S. firms. Several areas of research motivate this examination. First, research shows that global economic influences, such as economic downturns and the desire to increase the international content of portfolios, encourage investors to seek out international investment opportunities in new markets. Second, literature also reveals that emerging markets provide superior growth potential; however, analyzing such firms could introduce task complexity which research finds to be associated with lower forecast accuracy. Finally, research shows that financial analysts cover firms of which they have a favorable opinion. Therefore, because of this literature, it is reasonable to expect that analysts make more optimistic forecasts (over-estimate errors) of the earnings potential of the non-U.S. firms that they choose to follow vs. U.S. firms. Using a summary level measurement of forecast optimism, the authors find that analysts forecasts are more optimistic for non-U.S. firms over both short and long-term horizons. In analyst-level tests, it was found that individual analysts produce more optimistic forecasts for non-U.S. firms in relation to their peers in the long-term; however, that optimism is reduced under short horizons. As portfolios become more internationally diversified, the result of this study will be useful to investors seeking analyst guidance about international investment opportunities.

scholarly journals Appraisal of Financial Performance of Regional Rural Banks with Special Reference to Assam Gramin Vikash Bank, Maharashtra Gramin Vikash Bank and Karnataka Gramin Vikash Bank

2021 ◽  
Vol 3 (12) ◽  
pp. 191-196
Author(s):  
S Selvakumar ◽  
D Abima
Keyword(s):  
Financial Performance ◽  
Special Reference ◽  
Financial Planning ◽  
Regional Level ◽  
Short Term ◽  
Banking Services ◽  
Banking Business

Regional Rural Banks are functioning at regional level in different States and Union Territories of India. These banks are rendering both fundamental and modern banking services. Finance is one of the most important aspects of banking business. Without proper financial planning an enterprise is unlikely to be successful in managing money. For the proper financial planning, analysis of the financial performance is required. Hence, an attempt has been made to analyse the performance of the Assam Gramin Vikash Bank, Maharashtra Gramin Bank and Karnataka Vikash Gramin Bank in terms of short term solvency, long term solvency and profitability. It is concluded that the financial performance of the Assam Gramin Vikash Bank, Maharashtra Gramin Bank and Karnataka Vikash Gramin Bank are good.

scholarly journals Updating great expectations: The effect of peer salary information on own-earnings forecasts

2020 ◽  
Author(s):  
Sam Jones ◽  
Ricardo Santos
Keyword(s):  
Job Search ◽  
Cognitive Skills ◽  
Public Information ◽  
Earnings Forecasts ◽  
Short Term ◽  
Great Expectations ◽  
Earnings Expectations ◽  
Salary Information ◽  
The Impact

How jobseekers set their earnings expectations is central to job search models. To study this process, we track the evolution of own-earnings forecasts over 18 months for a representative panel of university-leavers in Mozambique and estimate the impact of a wage information intervention. We sent participants differentiated messages about the average earnings of their peers, obtained from prior survey rounds. Demonstrating the stickiness of (initially optimistic) beliefs, we find an elasticity of own-wage expectations to this news of around 7 per cent in the short term and 16 per cent over the long term, which compares to a 22 per cent elasticity in response to unanticipated actual wage offers. We further find evidence of heterogeneous updating heuristics, where factors such as the initial level of optimism, cognitive skills, perceived reliability of the information, and valence of the news shape how wage expectations are updated. We recommend institutionalizing public information about earnings.

scholarly journals The effect of takeover defenses on long term and short term analysts’ earnings forecasts: The case of poison pills

2007 ◽  
Vol 4 (4) ◽  
pp. 140-144 ◽  
Author(s):  
Thomas A. Turk ◽  
Jeremy Goh ◽  
Candace E. Ybarra
Keyword(s):  
Earnings Forecasts ◽  
Security Analysts ◽  
Short Term ◽  
Takeover Defenses ◽  
Poison Pill ◽  
Poison Pills ◽  
One Year

This study examined the effect of poison pill adoption on long term and short earnings forecasts by security analysts. Our results provide no evidence of significant revisions in one-year or five-year earnings forecasts following the adoption of poison pills. We do find evidence, however, that firms adopt poison pills following a period of significant negative revisions in earnings forecasts. Our results suggest that poison pill adoptions may be a response to downward revisions in earnings forecasts

Characteristics and Implications of Long-Term Earnings Guidance

2020 ◽  
Vol 6 (1) ◽  
pp. 33-54
Author(s):  
Andrew C. Call ◽  
Adam M. Esplin ◽  
Bin Miao
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Real Earnings Management ◽  
Limited Attention ◽  
Earnings Guidance ◽  
Short Term ◽  
Operating Environments ◽  
Growth Forecasts

ABSTRACT We examine a form of voluntary disclosure that has received limited attention to date, namely, managers' long-term guidance for earnings three to five years in advance. We identify 1,739 long-term earnings forecasts issued by 295 unique firms from 2000 to 2012 and find that relative to firms that issue only short-term earnings guidance, those that also issue long-term guidance are larger, have more certain operating environments, and are followed by analysts who are more likely to issue long-term growth forecasts. Long-term guidance is informative to investors and analysts incorporate the news contained in these forecasts into their own long-term growth forecasts. We also document that the issuance of long-term guidance is associated with more (less) investor focus on long-term (short-term) earnings news. Last, we find mixed evidence on the association between long-term guidance and real earnings management decisions. Our study adds to the literature on managers' voluntary disclosure choices. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G17; M41.

Analysts' Conflicts of Interest and Biases in Earnings Forecasts

2007 ◽  
Vol 42 (4) ◽  
pp. 893-913 ◽  
Author(s):  
Louis K. C. Chan ◽  
Jason Karceski ◽  
Josef Lakonishok
Keyword(s):  
Conflicts Of Interest ◽  
Earnings Forecasts ◽  
Investment Banking ◽  
International Markets ◽  
Forecast Revisions ◽  
Bull Market ◽  
Earnings Surprises ◽  
Banking Business ◽  
Growth Stocks

AbstractAnalysts' earnings forecasts are influenced by their desire to win investment banking clients. We hypothesize that the equity bull market of the 1990s, along with the boom in investment banking business, exacerbated analysts' conflicts of interest and their incentives to strategically adjust forecasts to avoid earnings disappointments. We document shifts in the distribution of earnings surprises and related changes in the market's response to surprises and forecast revisions. The evidence for shifts is stronger for growth stocks, where conflicts of interest are more pronounced. However, shifts are less notable for analysts without ties to investment banking and in international markets.

Benefits of management disclosure precision on analysts’ forecasts

2014 ◽  
Vol 13 (4) ◽  
pp. 371-399 ◽  
Author(s):  
Yu-Ho Chi ◽  
David A. Ziebart
Keyword(s):  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Forecast Errors ◽  
Management Earnings Forecasts ◽  
Earnings Guidance ◽  
Short Term ◽  
Content Type ◽  
Management Forecast ◽  
Forecast Precision ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of management’s choice of forecast precision on the subsequent dispersion and accuracy of analysts’ earnings forecasts. Design/methodology/approach – Using a sample of 3,584 yearly management earnings per share (EPS) forecasts and 10,287 quarterly management EPS forecasts made during the period of 2002-2007 and collected from the First Call database, the authors controlled for factors previously found to impact analysts’ forecast accuracy and dispersion and investigate the link between management forecast precision and attributes of the analysts’ forecasts. Findings – Results provide empirical evidence that managements’ disclosure precision has a statistically significant impact on both the dispersion and the accuracy of subsequent analysts’ forecasts. It was found that the dispersion in analysts’ forecasts is negatively related to the management forecast precision. In other words, a precise management forecast is associated with a smaller dispersion in the subsequent analysts’ forecasts. Evidence consistent with accuracy in subsequent analysts’ forecasts being positively associated with the precision in the management forecast was also found. When the present analysis focuses on range forecasts provided by management, it was found that lower precision (a larger range) is associated with a larger dispersion among analysts and larger forecast errors. Practical implications – Evidence suggests a consistency in inferences across both annual and quarterly earnings forecasts by management. Accordingly, recent calls to eliminate earnings guidance through short-term quarterly management forecasts may have failed to consider the linkage between the attributes (precision) of those forecasts and the dispersion and accuracy in subsequent analysts’ forecasts. Originality/value – This study contributes to the literature on both management earnings forecasts and analysts’ earnings forecasts. The results assist in policy deliberations related to calls to eliminate short-term management earnings guidance.

Jacques Laffitte and the Beginnings of Investment Banking in France

1948 ◽  
Vol 22 (4-6) ◽  
pp. 137-161 ◽  
Author(s):  
Fritz Redlich
Keyword(s):  
Eighteenth Century ◽  
Investment Banking ◽  
Revolutionary War ◽  
Short Term ◽  
Foreign Correspondents ◽  
Banking Business ◽  
Napoleonic Era

At the close of the Napoleonic era, the banking business of France except in one respect had not advanced much over what it had been in 1789. At that time it had been dominated by Protestant Swiss, the best known of whom was Necker. Some of them like the Mallets, Delesserts, and Thélussons, descended from French Huguenots who had fled to Geneva and other places and in a later generation returned to France as Swiss. The business of these bankers consisted in lending their own funds and those entrusted to their care to worthy applicants for loans, probably merchants as well as noblemen. They administered fortunes for their owners, which is especially true of the court bankers who were charged with the financial affairs of the king and his family. In addition, like all eighteenth-century bankers they had a flourishing business in bills of exchange, including the accepting of drafts of bankers and merchants in other cities and countries. Necker is said to have organized these bankers and their foreign correspondents so as to provide by a system of short-term drafts the funds for French participation in our Revolutionary War.

scholarly journals Liquidity of commercial banks in Portugal and Spain

2021 ◽  
Vol 10 (1) ◽  
pp. 46-64
Author(s):  
Marco Amaral
Keyword(s):  
Financial Markets ◽  
Commercial Banks ◽  
Banking Sector ◽  
Balance Sheet ◽  
Annual Reports ◽  
Short Term ◽  
Liquidity Management ◽  
Banking Business ◽  
Critical Aspects

Liquidity is very important for the functioning of financial markets, especially for the banking sector, because one of the critical aspects in the banking business is precisely the process of transforming short-term funds and placing them in the medium and long term. This paper aims to comprehensively assess the liquidity positions of Portuguese and Spanish commercial banks through different liquidity ratios for the period from 2002 to 2015 and understand whether the liquidity management strategy differs by bank size. To this end, unconsolidated balance sheet data were used, which were obtained from the banks annual reports. The sample includes a significant part of the Portuguese and Spanish banking sector (not only by the number of banks, but also by the representation in banks total assets). The results obtained show that Spain's banks' liquidity indicator has decreased over the last four years. In contrast, bank liquidity indicator in Portugal varied slightly positively during the period 2002-2006 but decreased sharply between 2010 to 2015. Bank liquidity increased slightly during the period of the financial crisis in both countries, namely between from 2007 to 2009. Finally, it is concluded that smaller banks have less fluctuating liquidity management, i.e., large and medium-sized banks show greater variation in bank liquidity in the period under analysis, i.e., they are less liquid.

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