Determinants of Analysts' Tendency to Complement or Follow Management Forecasts

Prior studies suggest that managers issue their forecasts of earnings to guide analysts' and investors' expectations. I examine a large sample of management forecasts and their subsequent analyst forecasts issued within 4 weeks. I find that 50% of the analyst forecasts are different from previous management forecasts by only less than 5%, suggesting that management guidance is very effective in those analyst forecasts and it's almost completely followed by analysts. 34% of the analyst forecasts are found to deviate from previous management forecasts by more than 20%, suggesting that management guidance is not completely followed and such analyst forecasts provide complemental information to investors. I perform cross-sectional logistic regressions to document that determinants such as firms' information environment, management forecast characteristics and horizon, analyst forecast ability and timing have strong effects on analysts' tendency to complement or follow management forecasts.