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Abstract
With the globalisation and integration of world financial markets, the application of enterprise information systems has become more and more popular in the financial service sector. This paper examines the analyst's decision regarding allocation of effort to the precision and timeliness of earnings forecasts with financial decision support systems. Once an analyst decides to follow a firm, the analyst must choose the level of effort to devote to generating outputs, such as earnings forecasts. This paper provides insights into this by examining three issues concerning the forecasts of the individual analyst. First, forecast accuracy and frequency are modelled simultaneously. Then, whether these two effort allocation choices are complements or substitutes is tested. Finally, how competition affects these two characteristics is examined. The accuracy and frequency are examined with simultaneous equations. Results from this analysis suggest that analysts allocate effort among these two forecast criteria in a complementary way. Finally, empirical results reveal a positive association between competition and forecast frequency by the individual analyst. However, a significant association between competition and the individual analyst's forecast accuracy is not found.
Acknowledgements
I would like thank John Jacob (the discussant), Jim McKeown, Eddie Riedl, Ram Venkataraman and seminar participants at the American Accounting Association Annual Meeting. I gratefully acknowledge the contribution of IBES International Inc. for providing earnings per share forecast data, available through the Institutional Brokerage Estimate System and provided as part of a broad academic programme to encourage earnings expectation research.
