Abstract
This study investigates whether analysts can benefit from understanding a target firm’s conditional conservatism. In particular, we examine the forecasting performance of analysts when they match the asymmetric timeliness of their earnings forecast revisions (i.e., forecast conservatism) with the asymmetric timeliness of firms’ reported earnings (i.e., accounting conservatism). We find that better conservatism-matching analysts produce more accurate earnings forecasts and elicit stronger market reactions to their forecast revisions. Further, better conservatism-matching analysts issue more profitable stock recommendations and have more favorable career outcomes. Our results indicate that analysts’ ability to understand accounting conservatism is an important reflection of analyst expertise and professional success.
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