The influence of strategic patterns of internationalization on the accuracy and bias of earnings forecasts by financial analysts

This paper examines how financial analysts’ earnings per share forecasts are affected by strategic patterns that multinational firms have used to expand abroad. Prior empirical studies have examined a firm's internationalization level as a one-dimensional construct involving increased task complexity for financial analysts’ forecasting and therefore resulting in lower accuracy and greater optimistic bias in earnings forecasts. In contrast, we use two strategic patterns of internationalization associated with geographic dispersion and cross-border integration to characterize a firm's international strategy, and find different empirical results using a sample of U.S. public companies with domestic and international operations. The empirical evidence suggests that geographic dispersion contributes to increases in forecasting accuracy and decreases in optimistic bias. Further, the results support that cross-border integration leads to decreases in forecasting accuracy. The two strategic patterns of internationalization are a consequence of managerial choices and therefore these results are important for managers, investors and shareholders as they help explain the linkages between international strategies and earnings forecasts by financial analysts.