The impact of analyst coverage on management forecast accuracy

Abstract

This study examines whether and how analyst coverage influences the accuracy of management earnings forecasts using listed firms in Japan, where management earnings forecasts are effectively mandated. We find that managers of firms covered by analysts are more likely to be accurate regarding their initial forecasts, and their forecast revisions during the fiscal year tend to be small. Moreover, the impact of analyst coverage tends to be more pronounced when covering analysts are competent and when covered firms have lower institutional ownership. The findings suggest that analysts play a significant and unique role in improving management forecast quality.