Anchoring among German financial analysts: An empirical and background analysis
The paper investigates whether financial analysts in Germany were subject to cognitive and emotional constraints. The focus was on the heuristic of anchoring. An evaluation based on 224 individual forecasts for seven DAX-listed companies for the period from 2011 to 2018 with respect to the earnings per share of the current business year was done. Three issues were analysed in particular: Whether anchoring was found at all, to what extent anchoring has led to a deterioration of the forecast quality and if the effect of anchoring was still measurable shortly before the incurred earnings had been announced. For the assessment of the data, descriptive statistical measures, and tests such as the non-parametric Wilcoxon rank-sum test or the parametric t-test were used. For the German capital market there are currently very few empirical behavioural studies dealing with the forecast quality of financial analysts. This study is aiming to close this gap by investigating to what extent behavioural aspects have led to a significant deterioration in the forecast quality of financial analysts for the German stock market. The quality and reliability of analysts' forecasts is of high relevance to the capital market, since the assessments of financial analysts are used as a basis for investment decisions by private and institutional investors and are thus essential for a high degree of efficiency in the allocation of capital in a financial system.
Amir, E., Baruch, L. & Sougiannis, T. (2003). Do financial analysts get intangibles? European Accounting Review, 12(4), 635-659. DOI: https://doi.org/10.1080/0963818032000141879
Amir, E. & Ganzach, Y. (1998). Overreaction and under-reaction in analysts' forecasts. Journal of Economic Behavior and Organisation, 37(3), 333-347. DOI: https://doi.org/10.1016/S0167-2681(98)00092-4
Baldwin, B. A. (1984). Segment Earnings Disclosure and the Ability of Security Analysts to Forecast Earnings per Share. The Accounting Review, 59(3), 376-389.
Ballwieser, W. (2011). Unternehmensbewertung. Prozess, Methoden und Probleme, (3rd ed.). Stuttgart 2011.
Bartov, E. & Cohen, D. A. (2009). The Number Game in the Pre- and Post- Sarbanes-Oxley Eras. The Journal of Accounting, Auditing & Finance, 24(4), 505-534. DOI: https://doi.org/10.1177/0148558X0902400401
Brunnberg, D. (2018). Kapitalmarktkommunikation und Finanzanalysten. Eine Sentimentanalyse der Managerkommunikation in Analystenkonferenzen. Springer Gabler, 2018. DOI: https://doi.org/10.1007/978-3-658-21371-8
Campbell, S. D. & Sharpe, S. A. (2009). Anchoring Bias in Consensus Forecasts and its Effect on Market Prices. Journal of Financial and Quantitative Analysis, 44(2), 369-390. DOI: https://doi.org/10.1017/S0022109009090127
Cen, L., Hilary, G. & Wei, J. (2013). The Role of Anchoring Bias in the Equity Market: Evidence from Analysts’ Earnings Forecasts and Stock Returns. Journal of Financial and Quantitative Analysis, 48(1), 47-76. DOI: https://doi.org/10.1017/S0022109012000609
Chan, K., Karceski, J. & Lakonishok, J. (2007). Analysts' Conflicts of Interest and Biases in Earnings Forecasts. The Journal of Financial and Quantitative Analysis, 42(4), 893-913. DOI: https://doi.org/10.1017/S0022109000003434
Clement, M. B. (1999). Analyst Forecast Accuracy: Do Ability, Resources and Portfolio Complexity Matter? Journal of Accounting and Economics, 27(3), 285-303. DOI: https://doi.org/10.1016/S0165-4101(99)00013-0
Collingwood, H. (2001). The earnings game. Everyone plays, nobody wins. Harvard Business Review, June, 79(6), 65-7, 146.
Cotter, J., Tuna, I. & Wysocki, P. D. (2006). Expectations Management and Beatable Targets: How Do Analysts React to Explicit Earnings Guidance? Contemporary Accounting Research, 23(3), 593-624. DOI: https://doi.org/10.1506/FJ4D-04UN-68T7-R8CA
Daxhammer, R. J. & Facsar M. (2017). Behavioral Finance. Verhaltenswissenschaftliche Finanzmarktforschung im Lichte begrenzt rationaler Marktteilnehmer. (2nd. ed.), UVK, München. DOI: https://doi.org/10.24053/9783739800738
Darrough, M. N. & Russell, T. (2002). A Positive Model of Earnings Forecasts: Top Down versus Bottom Up. The Journal of Business, 75(1), 127-152. DOI: https://doi.org/10.1086/323507
DeBondt, W. F. M. & Forbes, W. P. (1999). Herding in analyst earnings forecasts. Evidence from the United Kingdom. European Financial Management, 5(2), 143-163. DOI: https://doi.org/10.1111/1468-036X.00087
Dugar, A. & Nathan, S. (1995). The Effect of Investment Banking Relationships on Financial Analysts' Earnings Forecasts and Investment Recommendations. Contemporary Accounting Research, 12(1), 131-160. DOI: https://doi.org/10.1111/j.1911-3846.1995.tb00484.x
Elliott, J. A. & Philbrick, D. R. (1990). Accounting Changes and Earnings Predictability. The Accounting Review, 65(1), 303-316.
Fried, D. & Givoly, D. (1982). Financial analysts' forecasts of earnings: A better surrogate for market expectations. Journal of Accounting and Economics, 4(2), 85-107. DOI: https://doi.org/10.1016/0165-4101(82)90015-5
Hirshleifer, D., Levi, Y., Lourie, B. & Teoh, S. H. (2018). Decision Fatigue and Heuristic Analyst Forecasts. NBER Working Paper 24293. DOI: https://doi.org/10.3386/w24293
Hirshleifer, D. & Hong Teoh, S. (2003). Limited attention, information disclosure, and financial reporting. Journal of Accounting and Economics, 36(1), 337-386. DOI: https://doi.org/10.1016/j.jacceco.2003.10.002
Hirshleifer, D. & Hong Teoh, S. (2003). Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis. European Financial Management, 9(1), 25-66. DOI: https://doi.org/10.1111/1468-036X.00207
Hobbs, J. (2015). A comparison of buy-side and sell-side analysts. Review of Financial Economics, 24(1), 42-51. DOI: https://doi.org/10.1016/j.rfe.2014.12.004
Hodgkinson, L. (2001). Analyst Forecasts and the Broker Relationship. Journal of Business Finance & Accounting, 28(7-8), 943-961. DOI: https://doi.org/10.1111/1468-5957.00399
Hope, O. K. (2003). Disclosure practices, enforcement of accounting standards and analysts’ forecast accuracy: An international study. Journal of Accounting Research, 41(2), 235-272. DOI: https://doi.org/10.1111/1475-679X.00102
Hollie, D., Shane, P. B. & Zhao, Q. (2017). The role of financial analysts in stock market efficiency with respect to annual earnings and its cash and accrual components. Accounting and Finance, 57, 199-237. DOI: https://doi.org/10.1111/acfi.12138
Kahneman, D. & Tversky, A. (1974). Judgment under uncertainty: heuristics and biases. Science, 185, 1124?1131.
Kajüter, P. (2009). Praxis der Lageberichtserstattung – Ergebnisse einer empirischen Studie. Öffentliche Sitzungsunterlagen des DSR, Berlin.
Kent Baker, H., Filbeck, G. & Ricciardi, V. (2017). How Behavioural Biases affect Finance Professionals. European Financial Review, (Dec.-Jan.), 25-29.
Lehmann, K. (2014). Managementprognosen und Analystenschätzungen. Empirische Untersuchung zum Prognoseverhalten von Unternehmen und Finanzanalysten. Dissertation, Bochum 2014.
Lim, T. (2001). Rationality and Analysts’ Forecast Bias. The Journal of Finance, 56(1), 369-385. DOI: https://doi.org/10.1111/0022-1082.00329
Malloy, C. (2005). The Geography of Equity Analysis. Journal of Finance, 60(2), 719-755. DOI: https://doi.org/10.1111/j.1540-6261.2005.00744.x
Mehran, H. & Stulz, R. M. (2007). The economics of conflicts of interest in financial institutions. Journal of Financial Economics, 85(2), 267-296. DOI: https://doi.org/10.1016/j.jfineco.2006.11.001
O’Brien, P. C., McNichols, M. F. & Lin, H. W. (2005). Analyst impartiality and investment banking relationships. Journal of Accounting Research, 43(4), 623-650. DOI: https://doi.org/10.1111/j.1475-679X.2005.00184.x
Paarz, R. (2011). Einfluss der Rechnungslegung auf Finanzanalysten, Frankfurt am Main 2011, Dissertation. DOI: https://doi.org/10.3726/978-3-653-01051-0
Palepu, K. G. & Healy, P. M. (2012). Business analysis & valuation: Using financial statements. (5th ed), South Western, Nashville 2012.
Ricciardi, V. (2008). The Psychology of Risk: The Behavioral Finance Perspective. Chapter 10, Handbook of Finance, 2, 85-111. DOI: https://doi.org/10.1002/9780470404324.hof002010
Richardson, S., Teoh, S. H. & Wysocki, P. D. (2004). The Walk-down to Beatable Analysts Forecasts: The Role of Equity Issuance and Insider Trading Incentives. Contemporary Accounting Research, 21(4), 885-924. DOI: https://doi.org/10.1506/KHNW-PJYL-ADUB-0RP6
Ruhwedel, F., Sellhorn, T. & Lerchenmüller, J. (2009). Prognoseberichterstattung in Aufschwung und Krise – Eine empirische Untersuchung der DAX- Unternehmen. Der Betrieb, 62(25), 1305-1313.
Whitehouse, M. (2017). Financial analysts and their role in financial communication and investor relations. The handbook of financial communication and investor relations, Wiley, New York, 117-126. DOI: https://doi.org/10.1002/9781119240822.ch10
Wichels, D. (2001). Grundsätze des Research. Achleitner, A. K. Thoma, G. F. (Editors): Handbook Corporate Finance, (2nd. Ed), Köln, 10-26.
Zhang, J., Raman, J. & Dong, S. (2019). Factors Affecting the Accuracy of Analyst's Forecasts: A Review of the Literature. Academy of Accounting and Financial Studies Journal, 23(3), 1-18.
Copyright (c) 2020 Andre Tomfort, Paulina Wiegand
This work is licensed under a Creative Commons Attribution 4.0 International License.
Author (s) should affirm that the material has not been published previously. It has not been submitted and it is not under consideration by any other journal. At the same time author (s) need to execute a publication permission agreement to assume the responsibility of the submitted content and any omissions and errors therein. After submission of a revised paper in the light of suggestions of the reviewers, editorial team edits and formats manuscripts to bring uniformity and standardization in published material.
This work will be licensed under Creative Commons Attribution 4.0 International (CC BY 4.0) and under condition of the license, users are free to read, copy, remix, transform, redistribute, download, print, search or link to the full texts of articles and even build upon their work as long as they credit the author for the original work. Moreover, as per journal policy author (s) hold and retain copyrights without any restrictions.