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Self-selection of Analysts’ Long-term EPS Growth Forecasts
Andreas Simon,
The University of Queensland
ABSTRACT. This study investigates the self-selection of analysts’ long-term EPS growth forecasts (hereafter LTG). I find that analysts who forecast LTG differ in their ability, characteristics, information environment and incentive structure from analysts who do not forecast LTG. Specifically, I find that analysts forecasting LTG have: higher ability; more experience and resources available; more private information; and worked prior the Regulation FD period for brokers with underwriter relationships, post Regulation FD these incentives conflicts disappear. Tests of firm characteristics reveal that analysts’ selective forecasting behaviour is not depended on whether firms have high earnings volatility and high market-to-book ratios. Analysts issuing LTG, however, tend to pick larger firms with high intangible assets. These findings are intriguing as it shows that analysts are more likely to issue LTG for firms with future growth prospects that cannot be captured by short-term earnings forecasts.
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