Interactions between analysts' and managers' earnings forecasts

We examine interactions between the earnings forecasts made by analysts and those from management by investigating: (1) managers' versus analysts' comparative efficiencies at incorporating financial statement information (FSI) and the information underlying stock returns (SRI) into their forecasts; and (2) the comparative roles of FSI and SRI in improving analysts' forecasts made after management forecasts. We show: (1) managers' comparative advantage over analysts is greater for incorporating SRI into their forecasts rather than FSI; and (2) after observing management forecasts, analysts improve their forecasts more by better utilizing SRI versus FSI. We show that analysts' failure to incorporate SRI, but not FSI, into their forecasts is associated with managers' propensity to issue forecasts.