Why Aren't Analysts' Revenue Forecasts Walked Down Like Earnings Forecasts?
|Speaker:||Mark Bradshaw, Boston College|
|Date: ||Wednesday 11 December 2013|
|Time: ||14.00 - 15.30|
|Location: ||Streatham Court D|
Well-documented walkdown patterns in analysts' earnings forecasts are often attributed to analysts' incentives to curry favor with managers by expressing optimistic views at longer horizons. If descriptive, we would expect to see a similar pattern for revenue forecasts. However, we document very limited evidence of a similar walkdown of revenue forecasts. Because earnings forecasts presumably encompass revenue forecasts, earnings seem obviously more difficult to forecast than revenues. In contrast to the 'curry favor' explanation for the well-known earnings walkdown, we argue that task difficulty explains the differential patterns for revenue and earnings forecasts. Results are consistent with task difficulty being a primary determinant of the different patterns of earnings and revenue forecasts.