Horizon‐Dependent Underreaction in Financial Analysts' Earnings Forecasts*

This paper provides empirical evidence that underreaction in financial analysts' earnings forecasts increases with the forecast horizon, and offers a rational economic explanation for this result. The empirical portion of the paper evaluates analysts' responses to earnings‐surprise and other earnings‐related information. Our empirical evidence suggests that analysts' earnings forecasts underreact to both types of information, and the underreaction increases with the forecast horizon. The paper also develops a theoretical model that explains this horizon‐dependent analyst underreaction as a rational response to an asymmetric loss function. The model assumes that, for a given level of inaccuracy, analysts' reputations suffer more (less) when subsequent information causes a revision in investor expectations in the opposite (same) direction as the analyst's prior earnings‐forecast revision. Given this asymmetric loss function, underreaction increases with the risk of subsequent disconfirming information and with the disproportionate cost associated with revision reversal. Assuming that market frictions prevent prices from immediately unraveling these analyst underreac‐tion tactics, investors buying (selling) stock on the basis of analysts' positive (negative) earnings‐forecast revisions also benefit from analyst underreaction. Therefore, the asymmetric cost of forecast inaccuracy could arise from rational investor incentives consistent with a preference for analyst underreaction. Our incentives‐based explanation for underreaction provides an alternative to psychology‐based explanations and suggests avenues for further research.     

Measurement in metrology,psychology and social sciences: data generation traceability and numerical traceability as basic methodological principles applicable across sciences

Quality & Quantity - Measurement creates trustworthy quantifications. But unified frameworks applicable to all sciences are still lacking and discipline-specific terms, concepts and practices...     

Age matters: How developmental stages of adulthood affect customer reaction to complaint handling efforts

This research examines how age moderates the impact of justice perception (i.e., distributive, procedural, and interactional justice) on post-complaint satisfaction. By tracking the three justice dimensions' effect sizes across different ages, we identify four developmental stages of adulthood, which are separated by five-year transition periods. The stages are young (18–27 years of age), early (33–43), middle (49–57), and late adulthood (≥63). The moderation results show that the impact of distributive justice on satisfaction peaks in middle adulthood and the effect of procedural justice in early adulthood. Finally, the effect of interactional justice dips in early adulthood. Managerial and theoretical implications are discussed.     

Research in accounting for income taxes

This paper comprehensively reviews the Accounting for Income Taxes (AFIT) literature. We begin by identifying four distinctive aspects of AFIT and briefly covering the rules surrounding AFIT. We then review the existing studies in detail and offer suggestions for future research. We emphasize the research questions that have been addressed (most of which relate to whether the tax accounts are used to manage earnings and whether the tax accounts are priced by equity market participants). We also highlight areas that have not received much research attention and that warrant future analysis.     

Functions of units,scales and quantitative data: Fundamental differences in numerical traceability between sciences

Quality & Quantity - Quantitative data are generated differently. To justify inferences about real-world phenomena and establish secured knowledge bases, however, quantitative data generation...     

Optimal taxation in the Uzawa–Lucas model with externality in human capital

In this paper we study the optimal policy in the Uzawa–Lucas model with externality in human capital when agents value both consumption and leisure. We find that the government pursuing the first best can achieve its goal by a subsidy which depends on foregone earnings while studying and which is financed through a lump sum tax. Anyway, the optimal policy, that should be designed to provide incentives for agents to devote more time to schooling and cut both on leisure and working, is not unique. There exists an infinite number of combinations of consumption, capital income, labor income and lump sum taxes that can decentralize the first best.     

Noah's Ark is full of common species attractive to humans: The case of boid snakes in zoos

As the fate of endangered species may largely depend on human decisions, we analyzed the effect of species attractiveness to humans on conservation efforts devoted to captive breeding. Our respondents were asked to rank photographs of 56 species of boas and pythons according to perceived attractiveness. Surprisingly, attractiveness, body size and, marginally, also taxonomic uniqueness of the species were the only significant predictors of the size of zoo population. On the other hand, variables putatively associated with species rarity (inclusion in the Red List or protection by international law, geographic range size, and commercial price) had no effect. The range size was, however, positively correlated with attractiveness. As the perceived attractiveness affects at least some components of the conservation effort, it should not be further neglected but should be routinely included into conservation reasoning.