Earnings forecasting research: an overview and critique

Past research has extensively addressed the influence of accounting information on stockprices. However, results of this branch of capital market based research have beeninconclusive, partly due to methodological deficiencies. Focusing on differential groups ofmarket participants, such as financial analysts forecasting earnings, might contribute to ourunderstanding of the functioning of capital markets and the role of accounting information. In this paper an overview and critique of the earningsforecasting literature is presented. For the purpose of offering some insight into the present state of the earnings forecasting research and detectingthe remaining deficiencies in our understanding of financial analysts a classification is made, Studies are divided into process-oriented studies andresults-oriented studies. Studying individual forecasting processes is necessary, since earnings forecasts at the aggregate level are found to bedistorted by inefficient individual information processing. However, process-oriented studies do not cover all aspects of the earnings forecastingprocess. For that reason, judgmental forecasting and decision making literature is drawn into the discussion to provide some directions for futureresearch.