We use a simultaneous equations model to study forecast accuracy, analyst following, and trading volume. Forecast accuracy and analyst follow- ing are determined simultaneously, with greater accuracy associated with higher following. This result supports the idea that an analyst's private information complements, rather than substitutes for, factors that increase certainty about the firm's prospects. Stocks generating more trading vol- ume (and thus greater brokeruge commissions) have higher analyst fol- lowing. Given the simultaneity we document between accuracy arid following, stocks that generate greater brokerage commissions not only directly induce higher analyst following but also indirectly enhance the accuracy of earnings forecasts about their firms. Finally, special items and a broad accounting-based signal of change impair analysts ' ability to predict filtiire earnings. The negative efSect of special items on accuracy is consistent with concerns raised by standard setters that unusual events impair investors' ability to interpret future earnings.
Kollmann, T. (2009). E-Entrepreneurship: Grundlagen der Unternehmensgründung in der Net Economy (p. 513). https://doi.org/10.1007/978-3-658-13076-3