Do analysts pay attention to managerial sentiment? : evidence from analysts' following decisions and earnings forecasts

We examine the impact of managerial sentiment on analysts' following decisions and earnings forecast accuracy. By analyzing the textual tone of management discussion and analysis sections in annual reports to capture managerial sentiment, we find that when managerial sentiment is more positive, firms attract more analyst following, while analysts' earnings forecasts become more accurate. The findings are robust to firm- and analyst-level forecasts, as well as to alternative metrics of managerial sentiment and analyst earnings forecasts. Additional analysis suggests that the impact is more salient for firms with high-quality information environments and non-star analysts.