Seemingly Inconsistent Analyst Revisions

63 Pages Posted: 6 Nov 2017 Last revised: 28 Jul 2020

See all articles by Michael Iselin

Michael Iselin

University of Minnesota - Twin Cities - Department of Accounting

Min Park

University of Kansas - Accounting and Information Systems Area

Andrew Van Buskirk

Ohio State University (OSU) - Department of Accounting & Management Information Systems

Date Written: July 27, 2020

Abstract

In about 20%-30% of cases where an analyst revises two outputs (namely, earnings estimates, target prices, or stock recommendations) simultaneously, the two estimates are revised in opposite directions. Existing literature notes that these inconsistent outputs are widespread, and concludes that they are lower-quality, driven by strategic bias, and are viewed as less valid by investors. We find that these characterizations are generally inaccurate. Apparent inconsistency is largely driven by accounting and economic factors, with only limited evidence that investment banking-related conflicts play a role. Moreover, inconsistent outputs are neither less accurate than consistent outputs nor do they resolve less investor uncertainty upon their release. Overall, our results suggest that researchers should be cautious in interpreting the correlation between analyst outputs as a measure of bias or quality, and in using a single analyst output as a proxy for an analyst’s overall views.

Keywords: analysts, target prices, earnings estimates, revisions, conflicts of interest

JEL Classification: G14, G24, M40, M41

Suggested Citation

Iselin, Michael and Park, Min and Van Buskirk, Andrew, Seemingly Inconsistent Analyst Revisions (July 27, 2020). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3064094 or http://dx.doi.org/10.2139/ssrn.3064094

Michael Iselin (Contact Author)

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

Min Park

University of Kansas - Accounting and Information Systems Area ( email )

1654 Naismith Drive
Lawrence, KS 66045
United States

Andrew Van Buskirk

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

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