On analysts' earnings forecast for failing firms

Abstract

Much research has been conducted on the properties of analystsâ earnings forecasts (AEF) and their information content in the context of the securities market. Broad conclusions are that AEF reflect a wide range of information, are relatively accurate and are associated with market returns and risk. Little research has been conducted on how the properties of AEF differ between different classes of firms and on whether AEF are useful in predicting events outside of the securities market. The general issues of interest in the study are how well AEF reflect different conditions faced by firms and how well measures based on AEF perform as indicators of future events. These issues are addressed by focusing on a particular class of firms, those that are failing. The specific objective is to examine differences in AEF between failing and healthy firms, and investigate whether measures developed from AEF are useful indicators of impending bankruptcy.