Review of Quantitative Finance and Accounting

, Volume 21, Issue 2, pp 103–122

Analysts' Rationality and Forecast Bias: Evidence from Sales Forecasts


DOI: 10.1023/A:1024841531461

Cite this article as:
Mest, D.P. & Plummer, E. Review of Quantitative Finance and Accounting (2003) 21: 103. doi:10.1023/A:1024841531461


When optimistic forecasts can improve access to management, rational analysts have incentives to issue optimistically-biased forecasts (Lim, 2001). This paper proposes that the extent of this optimistic forecast bias will depend on the forecast's importance to management. If management attaches less importance to a forecasted measure, analysts should decrease their forecast bias because the expected benefits of issuing optimistic forecasts are less. We examine analysts' earnings and sales forecasts, and predict that analysts' optimistic bias will be greater for earnings than for sales. Results are consistent with our predictions and contribute to the evidence that analysts' forecast bias is rational and intentional.

analysts' forecastsbiasrationalityearningssales

Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  1. 1.Stillman School of BusinessSeton Hall UniversitySouth Orange
  2. 2.Department of Accounting, College of Business AdministrationUniversity of North TexasDentonUSA