The role of financial analysts in stock market efficiency with respect to annual earnings and its cash and accrual components |
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| Authors: | Dana Hollie Philip B Shane Qiuhong Zhao |
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| Affiliation: | 1. E. J. Ourso College of Business, Louisiana State University, Baton Rouge, LA, USA;2. Mason School of Business, College of William and Mary, Williamsburg, VA, USA;3. College of Business, University of Missouri, Columbia, MO, USA |
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| Abstract: | This study examines biases in stock prices and financial analysts' earnings forecasts. These biases take the form of systematic overweighting or underweighting of the persistence characteristics of cash versus accrual earnings components. Our evidence suggests that stock prices tend to overweight and financial analysts tend to underweight these persistence characteristics. Furthermore, we find that analysts' underweighting attenuates stock price overweighting. However, we find little evidence that the overweighting in stock prices attenuates analyst underweighting. This study brings a new perspective to the literature regarding the disciplining role of financial analysts in capital markets. |
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| Keywords: | Accrual Analyst forecast Forecasting bias Free cash flow Market efficiency |
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