Do analysts sacrifice forecast accuracy for informativeness?

Henock Louis, Amy X. Sun, Oktay Urcan

Research output: Contribution to journalArticlepeer-review

25 Scopus citations


Analysts deviate from management guidance to correct for perceived earnings management. Although the deviations reduce forecast accuracy, they improve forecast informativeness, bringing the forecasts closer to the unmanaged earnings and reducing accruals mispricing. An implicit assumption in the literature is that more accurate analyst forecasts (i.e., estimates that are closer to the reported earnings) are better for investors, and that analysts' objective is to forecast the reported (managed) earnings accurately. Our analysis suggests that this is not necessarily the case and that an inaccurate forecast can actually be more informative than an accurate one. Prior studies on analysts' deviations from management guidance focus on analysts' incentives to issue estimates that managers can beat. These studies implicitly assume that analysts side with management against the interests of their clients. Our analysis indicates that analysts could also deviate from management guidance to provide useful valuation information to their clients.

Original languageEnglish (US)
Pages (from-to)1688-1708
Number of pages21
JournalManagement Science
Issue number7
StatePublished - Jul 2013

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research


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