Does Product Market Competition Affect Analysts’ Target Price Property?

• In Event: Research in Financial Accounting II

Abstract

In this study, we examine whether product market competition influences analysts’ target price dispersion and accuracy. High product market competition partially makes forecasting of target price more difficult by increasing the uncertainty regarding the future cash flows and the cost of capital. We find evidence that analysts target price dispersion and error are higher for firms facing more competition in the product market, even after controlling earnings forecast accuracy. We also find that analysts issue optimistic target price for firms that are facing more competition in product markets. Interestingly, we find that the effect of product market competition is less pronounced when the economy is contracting.

Authors

• Rajesh Kumar Sinha, Indian Institute of Management, Bangalore

• Kaveri Krishnan, Indian Institute of Management Visakhapatnam