Business Commons^™

Real Earnings Management And The Properties Of Analysts' Forecasts, Lisa A. Eiler, Joshua J. Filzen, Mark Jackson, Isho Tama-Sweet

Accountancy Faculty Publications and Presentations

Prior literature generally finds analysts are able to identify and process complex financial information. However, research suggests that in certain settings, analysts struggle to fully incorporate into their forecasts all available information. We examine analysts' forecast properties in the face of a specific type of complex financial information: real earnings management (REM). First, we investigate the relation between measures of REM and analysts' forecast properties. We find REM measures are associated with greater forecast error and dispersion in the following year. However, REM measures, by definition, capture abnormal operating results, and thus include both firms engaging in manipulative REM as …