Analysts’ Experience and Interpretation of Discretionary Accruals in Predicting Future Earnings.

• In Event: Strategic Disclosures 2

Abstract

We show that financial analysts are more optimistic when predicting earnings for firms with higher discretionary accruals. We then investigate whether analysts’ experience mitigates their over-optimism related to discretionary accruals. We find that analysts’ experience with the related industry and their experience of decomposing earnings into cash flows and accruals appear to mitigate analysts’ over-optimism related to discretionary accruals while firm and general experience do not. Our study provides new evidence on how experience affects analysts’ use of accruals information, especially discretionary accruals

Authors

• Alfred Zhu Liu, University at Albany, SUNY

• Richard A Schneible, University of Albany