The Impact of Management Forecasts on Analyst Forecast Characteristics
Coauthor(s): Urooj Khan, Oded Rozenbaum and Gil Sadka
Extant literature documents that analyst forecasts are optimistically biased and fail to incorporate information in prior returns. This paper extends similar tests to examine management forecast characteristics. We find that, in contrast to analyst forecast errors, management forecast errors cannot be predicted by prior returns or accruals. We also document that while both management forecasts and analyst forecasts are inaccurate, the sources of the inaccuracies are different. For the sample of firms that have analyst as well as management forecasts available, management forecasts are more efficient, which we define as better reflecting information in stock prices. However, management forecasts are more optimistically biased compared to analyst forecasts. We also find that the biases in management forecasts and inefficiency in analyst forecasts decline for more recent forecasts, however, the biases and inefficiencies are not eliminated.
Urooj Khan, Oded Rozenbaum and Gil Sadka "The Impact of Management Forecasts on Analyst Forecast Characteristics ." , Columbia Business School, (2013).