In about 20%–30% of cases where an analyst revises two outputs (namely, earnings estimates, target prices, or stock recommendations) simultaneously, the two estimates are revised in opposite directions. Existing literature notes that these inconsistent outputs are widespread, and concludes that they are lower-quality, driven by strategic bias, and are viewed as less valid by investors. We find that these characterizations are generally inaccurate. Apparent inconsistency is largely driven by accounting and economic factors, with only limited evidence that investment banking-related conflicts play a role. Moreover, inconsistent outputs are neither less accurate than consistent outputs nor do they resolve less investor uncertainty upon their release. Overall, our results suggest that researchers should be cautious in interpreting the correlation between analyst outputs as a measure of bias or quality, and in using a single analyst output as a proxy for an analyst's overall views.
Bibliographical noteFunding Information:
? We thank Mark Bradshaw, Gus De Franco, Michael Drake, Fabrizio Ferri (Reviewer), Michael Jung, Chandra Kanodia, Mark Lang (Editor), Stephannie Larocque, Robbie Moon, Tzachi Zach, and Gaoqing Zhang as well as workshop participants at the Georgia Institute of Technology, Ohio State University, the University of Minnesota, the University of Toronto, and the Wharton School for helpful comments. We gratefully acknowledge financial support from the Fisher College of Business, the Carlson School of Management, and the KU School of Business.
- Conflicts of interest
- Earnings estimates
- Target prices