Accounting - Theses
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ItemAnalyst forecast and firm reporting bias( 2019)This thesis investigates how the presence of an analyst affects the corporate information environment when both the analyst forecast and the manager’s report are endogenously determined. I build two stylized models in which the manager has hidden price incentives in issuing his report to investors, and the analyst has two signals, one about the firm’s fundamental value and the other about the manager’s hidden price incentives. In the first setting, the analyst’s objective is to forecast both reported earnings and firm fundamentals. I find that the analyst’s forecasting strategy depends on the manager’s incentives, even when the analyst does not care about the manager’s report, calling into question Beyer’s (2008) suggestion that the dependence is due to the interaction between the analyst and the manager. Further, I find that the investor’s total information at hand after both the forecast and the report are released is non-monotonic in the quality of the analyst’s information, increases with the manager’s weight on being close to firm fundamentals in his incentives, and decreases with his weight on being close to the analyst forecast. The second setting differs from the first in that the analyst’s objective is to care about the client’s trading profits and forecast accuracy. I find that the properties of the analyst forecast and the manager’s report depend on the analyst’s incentives to boost the client’s trading profits, complementing Beyer’s (2008) finding that the analyst’s forecasting strategy depends on the manager’s incentives due to the interaction between the two. Further, I find that both the forecast distortion and the forecast accuracy are non-monotonic in the quality of the analyst’s value information.