How do Analysts Process Managerial Earnings Forecasts? An Experimental Study Using Eye-Tracking Technology


Speaker:Philip Joos, Tilburg University
Date: Wednesday 25 January 2017
Time: 14:30 - 16:00
Location: Kolade Teaching Room, Building One

Further details


This study aims to open the black box of analysts’ decision processes by directly studying how analysts focus their attention on particular Management Earnings Forecasts (MEF) features and how this affects their subsequent recommendations. We use a 2x2 between participant experiment based on eye-tracking methodology where we vary the firm’s historical performance and the analyst and market reaction to the MEF. Based on psychological processing theories, we formulate three different hypotheses. We find that when the historical performance is low, participants spend relatively more time looking at financial information (more visual attention during the experiment). Moreover, when the analysts’ and market’s reaction turns from negative to positive, participants are more interested in financial information and less interested in non-financial information (namely the Strategy that the firm has put in place). In addition, we investigate recommendation decision and find that a tabular presentation format of performance targets is associated with a higher recommendation than narrative presentation format. Our study contributes to the long-standing debate on the role of financial and non-financial information in corporate communication with financial markets by showing how participants process information in management earnings forecasts. Our study could also provide insights to standard setters and policy makers who increasingly emphasize the importance of non-financial information.