Does Analyst Coverage Affect Bias and Information Content of Management Forecasts and Are Results Comparable Across Industries?

Abstract

This study provides empirical evidence regarding the bias of management forecasts and information content of management forecasts as analyst coverage increases both by firm and industry. Findings indicate that, on average, management forecasts in the sample exhibit downward bias in the forecast. This is a result that many prior researchers have found. However, when an industry analysis was performed, the industries with the highest analyst coverage (i.e., oil and gas, technology, and healthcare) had minimal bias. In fact, the bias of the management forecast approached zero. All other industries observed contained negative bias results. With respect to information content of the management forecast, firms with fewer than 14 analysts covering them were compared to firms with coverage by greater than 14 analysts. Findings suggest that firms with analysts exceeding 14 have an enhanced information signal to the investors and other interested parties than do firms with fewer than 14 analysts.