| Abstract |
We investigate whether analysts improve forecasting performance by incorporating firms’ accounting conservatism into their forecast revisions. We introduce a measure of the degree of the match (or alignment) between an analyst’s asymmetric timeliness in her earnings forecast revisions (i.e., forecast conservatism) and a target firm’s asymmetric earnings recognition timeliness (i.e., accounting conservatism). We find that analysts who better match their forecast conservatism with the accounting conservatism of the target firm produce more accurate forecasts and have greater influence on the market. Further, we find that market responses to better matching analysts are more pronounced for firms with higher institutional ownership. We suggest that analysts can benefit from matching the level of forecast conservatism with the level of a target firm’s accounting conservatism, and that their ability to do so is an ｉｍｐｏｒｔant reflection of analyst expertise. |