The Walk-down to Beatable Forecasts: International Evidence

Using a sample of 50,649 analysts covering 33,645 firms from 46 countries during 1992-2014, we find that the analyst “walk-down” phenomenon (Richardson et al. 2004), in which U.S. analysts first issue optimistic earnings forecasts and then revise their forecasts to a beatable level, is a global phenomenon. The analyst walk-down forecast pattern positively correlates with country characteristics related to insider trading enforcement, short-selling restrictions, and equity sales. It also positively relates to the stock-market-wide reward for beating analyst forecasts, and firm- and analyst-level characteristics underlying management concerns with share prices after earnings announcements and analysts’ incentives to cooperate. The effects of these factors on the walk-down forecast patterns are more pronounced for stronger investor-protection and better media-coverage institutions. Overall, these findings suggest that analyst forecast bias involves various forces including both a country’s institutional infrastructure, and firm and analyst characteristics.