Earnings Forecasts and Governability : Evidence from US

We examine the effect of governance on analysts' earnings forecasts. We contribute in the literature by opting for indicators of country governability, such as the quality of government regulations, rule of law and government effectiveness. By employing a comprehensive data set for over 912 US firms for the period 2000 – 2014, we demonstrate strong positive association between the government effectiveness and analysts' earnings forecasts. We extend this analysis also using corporate governance variables such as CEO equity incentives and CEO power, whilst we examine for possible cross term association between governability and the former. This paper, further, investigates the effects of earnings management on analysts' earnings forecasts documenting negative impact of the former on the latter