The Optimistic/Pessimistic Switch in Analyst Forecasts:International Evidence

We examine analyst forecast behavior in 50 countries to investigate whether the "analyst walk-down" phenomenon (Richardson et al.2004), in which U.S.analysts first issue optimistic earnings forecasts and then "walk down" their estimates to a beatable level, is a local manifestation of a global phenomenon.We find that walk-down phenomenon exists in 36 in all the 50 countries.Using both firm-level and country-level data, we confirm that walk-down is more likely to occur in countries with better insider trading law enforcement, having a lower concentration of share ownership, with more important equity market, and having stock market rewards meeting or beating analyst forecasts.We also find that institutional holding moderates the impact of other variables on "walk-down", i.e., the above relations are more pronounced for countries with higher institutional holding.Furthermore, we show that analysts located in the same country as covered firms are more likely to issue optimism/pessimism forecasts.Collectively, our findings have important implications for academics and practitioners in understanding how the impact of capital-market incentives on communication between managers and analysts varies across countries.26-5