Standing Out from the Crowd: The Real Effects of Outliers

55 Pages Posted: 12 May 2016 Last revised: 2 Mar 2021

See all articles by Qianqian Du

Qianqian Du

Hong Kong Polytechnic University

Frank Yu

China Europe International Business School

Xiaoyun Yu

Indiana University Kelley School of Business; European Corporate Governance Institute (ECGI); China Academy of Financial Research (CAFR)

Date Written: March 1, 2021

Abstract

We examine the real effects of outlier opinions in the context of extreme analyst optimism. Instead of ignoring them as noise, managers appear to respond to the arrival of outlier forecasts with more aggressive earnings management. When identifying potential channels, we find that an outlier forecast subsequently generates more optimistic forecasts by peer analysts and greater market reactions. Further analyses reveal that issuing outlier forecast engenders career benefit, increasing an analyst’s chance to cover more important clients of his employer. Outlier forecasts are also more likely to take place when an analyst’s reputation cost is lower. These findings suggest that the propensity for expressing extreme views is situational, and that personal incentives are the likely cause at play.

Keywords: outliers; extreme optimism; financial analyst; corporate governance

JEL Classification: G34, M41, G24

Suggested Citation

Du, Qianqian and Yu, Frank and Yu, Xiaoyun, Standing Out from the Crowd: The Real Effects of Outliers (March 1, 2021). Kelley School of Business Research Paper No. 16-40, Available at SSRN: https://ssrn.com/abstract=2778406 or http://dx.doi.org/10.2139/ssrn.2778406

Qianqian Du (Contact Author)

Hong Kong Polytechnic University ( email )

9/F, Li Ka Shing Tower
The Hong Kong Polytechnic University
Hong Kong, Hung Hom, Kowloon M923
China

Frank Yu

China Europe International Business School ( email )

669 Hongfeng Road
Pudong
Shanghai, 201206
China

Xiaoyun Yu

Indiana University Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3521 (Phone)
812-855-5875 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

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