The dynamics of earnings forecast management

Dan Bernhardt, Murillo Campello

Research output: Contribution to journalArticlepeer-review


This paper examines whether firms manage analyst forecasts and the associated value consequences. We find that earnings forecasts tend to grow pessimistic over the forecast horizon and these forecast changes and their timing are key determinants of whether firms generate positive earnings surprises: Late forecasts that raise (lower) the consensus sharply reduce (raise) the probability of positive surprises. This finding is the opposite of that predicted if consensus revisions reflected new information arrival. Investors seem to be "misled": downward consensus revisions lead to large abnormal returns following the earnings announcement. Paradoxically, downward forecast management reduces post-announcement share price, as the impact of reduced forecasts dominates the gain from generating positive surprises.

Original languageEnglish (US)
Pages (from-to)287-324
Number of pages38
JournalReview of Finance
Issue number2
StatePublished - 2007

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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