Do financial analysts publish long-term forecasts in response to firms’ overinvestments?

Abstract

This study examines the relationship between analysts issuing long-term earnings forecasts and firms overinvestment. This research demonstrates that a positive relationship exists between analysts issuing long-term forecasts and firms overinvesting. The relationship between analysts issuing a long-term forecast and firms overinvesting is more significant where asymmetry of information exists. Additionally, we find that a positive relation between overinvestments and long-term analyst forecast publications is more pronounced for firms covered by competent analysts. Finally, analysts benefit from promotion by issuing long-term forecasts in response to the firms’ overinvestment. These findings contribute to the related literature by confirming that investment decisions are considered important in analysts’ long-term earnings forecasts.