Analysts' Revenue Forecasts and Discretionary Revenues

• In Event: SESSION 4D: Forecasts and Earnings

Abstract

I investigate whether the initiation of analysts’ revenue forecasts has an effect on discretionary revenues in firms. Analyzing quarterly data, I find evidence that the initiation of analysts’ revenue forecasts is associated with a decrease in the magnitude of discretionary revenues in firms, controlling for several firm characteristics. The evidence is consistent with the disciplining role of financial analysts. The results are robust to different specifications of benchmark samples. The results are also robust to the entropy balancing procedure, which minimizes the covariate imbalance between treatment and control samples. Further analyses show that the magnitude of discretionary revenues are generally higher before the first initiation of the revenue forecast, but it decreases immediately after the first initiation. I also find that the initiation of revenue forecasts is also associated with a decrease in the magnitude of total discretionary accruals.

Author

• Sunay Mutlu, University of Texas at Dallas