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Corporate Investment And Analyst Pressure, Sébastien Michenaud
Corporate Investment And Analyst Pressure, Sébastien Michenaud
Sébastien Michenaud
This paper empirically investigates whether executives alter capital budgeting decisions to meet or beat analysts' earnings per share (EPS) consensus forecasts. I find that (i) firms reduce investment when analyst pressure to increase EPS is high and that (ii) firms increase their likelihood of meeting or beating annual or quarterly analysts' EPS consensus forecasts by reducing investment. Investment has a direct impact on EPS through depreciation expenses and collateral costs. The observed reduction in investment to meet forecast targets occurs primarily within firms with better investment opportunities, better governance, high CEO compensation, and high levels of opacity. This pattern is …