RT Journal Article
SR Electronic
T1 Earnings Forecasts of Firms Experiencing Sales Decline
JF The Journal of Investing
FD Institutional Investor Journals
SP 26
OP 33
DO 10.3905/joi.2008.701954
VO 17
IS 1
A1 Huong Ngo. Higgins
YR 2008
UL https://pm-research.com/content/17/1/26.abstract
AB Many studies show that earnings forecasts of poor-performance firms contain large errors (Kothari et al. [2005], Brown [2001], Hwang et al. [1996], and Elgers and Lo [1994]). Why are these forecasts so inaccurate? This article demonstrates that inflexible costs, as captured through operating and financial leverage above the industry's normal range, are associated with large forecast errors during sales decline. The results are useful in helping investment managers better evaluate analyst forecast ability, and help analysts improve their forecasts by better anticipating the impact of inflexible costs on earningsTOPICS: Performance measurement, volatility measures, exchanges/markets/clearinghouses