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Analyst Vs. Market Forecasts Of Earnings Management To Avoid Small Losses, Michael Eames, Yongtae Kim

Accounting

Burgstahler and Eames (2003) present evidence that analysts commonly anticipate earnings management to avoid small losses, but often incorrectly predict its occurrence. Here we consider whether the market's behavior mimics that of analysts. Our results suggest that analysts exhibit more forecast optimism in their zero earnings forecasts than in their other small earnings forecast levels, and markets exhibit less relative optimism at this point. At the 271-360 day forecast horizon, we find a reduction in the earnings response coefficient at analysts' zero earnings forecasts and interpret this as reflecting less optimism in market earnings forecasts than in analyst forecasts when …