Real earnings management and the properties of analysts' forecasts

Prior literature generally finds analysts are able to identify and process complex financial information. However, research suggests that in certain settings, struggle fully incorporate into their forecasts all available We examine analysts' forecast properties the face of a specific type information: real earnings management (REM). First, we investigate relation between measures REM properties. find associated with greater error dispersion following year. measures, by definition, capture abnormal operating results, thus include both firms engaging manipulative as well experiencing firm-specific economic shocks. Thus, conduct cross-sectional tests for without incentives manipulate earnings. low engage (i.e., most likely shocks) generate strongest positive year's properties, suggesting more implications high REM). Our results consistent across numerous proxies indicators incentives.