Are analyst forecasts more value relevant than reported earnings? Evidence from seasoned equity offerings

Abstract

Using the Vuong test, we compare the value-relevance of analyst forecasts with that of reported earnings around Seasoned Equity Offerings (SEOs), where upward earnings management is common. Using a sample of 1,683 SEOs from 2000–2016 by 1,125 European firms, we show that analyst forecasts are more value-relevant than reported earnings during the SEO year, but not afterward. Also, analysts who upgrade or forecast higher than reported earnings provide more value-relevant forecasts during the SEO year. However, those who revise downward produce more value-relevant forecasts in the year following the SEO. These results suggest some analysts prioritise short-term alignment with management, while others focus on long-term accuracy.