Industry Sensitivity to External Forces and the Information Advantage of Analysts over Managers*

Ashiq Ali*, Dan Amiram, Alon Kalay, Gil Sadka

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

This study examines whether analysts have an industry-level information advantage over managers when forecasting earnings. While analysts are often viewed as industry experts, prior research fails to document such an advantage. We predict that analysts' industry-level information advantage is more likely to exist in industries where firm performance is more sensitive to industry-level external economic forces. We find that for such firms, analysts provide relatively more accurate earnings forecasts compared to managers. Consistent with our predictions, we further find that managers of such firms provide fewer and less precise forecasts and that this association is more pronounced in firms with higher analyst following. Collectively, these findings suggest that analysts have an industry-level information advantage over managers when forecasting earnings for firms in industries with high sensitivity to external forces, and that industry sensitivity risk is a distinct industry characteristic that affects firm-level disclosure.

Original languageEnglish
Pages (from-to)1107-1135
Number of pages29
JournalContemporary Accounting Research
Volume40
Issue number2
DOIs
StatePublished - 1 May 2023

Funding

FundersFunder number
Michigan State University

    Keywords

    • analyst earnings forecasts
    • analysts' industry expertise
    • analysts' information advantage over managers
    • industry sensitivity risk
    • management earnings forecasts

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