2012/12/03 by Ling Cen, Gilles Hilary, K. C. John Wei +1 · 1 citation
Business, Management and Accounting · Economics, Econometrics and Finance · #Auditing, Earnings Management, Governance #Financial Markets and Investment Strategies #Corporate Finance and Governance
paper · doi:10.1017/s0022109012000609
Abstract We test the implications of anchoring bias associated with forecast earnings per share (FEPS) for forecast errors, earnings surprises, stock returns, and stock splits. We find that analysts make optimistic (pessimistic) forecasts when a firm’s FEPS is lower (higher) than the industry median. Further, firms with FEPS greater (lower) than the industry median experience abnormally high (low) future stock returns, particularly around subsequent earnings announcement dates. These firms are also more likely to engage in stock splits. Finally, split firms experience more positive forecast revisions, more negative forecast errors, and more negative earnings surprises after stock splits.