The effect of accounting comparability and earnings commonality on analyst behaviour

This paper examines the distinctive roles of accounting comparability and earnings commonality in shaping financial analysts' forecasting behaviour. Accounting comparability and earnings commonality stem from the similarities in a firm's underlying economics or its accounting practices. However, they influence analyst behaviour differently by altering the perceived cost of obtaining and processing firm-specific information versus industry-wide earnings news for forming earnings forecasts. This study presents evidence indicating that accounting comparability and earnings commonality are positively associated with the number of analysts following, suggesting that efficiency benefits from greater comparability. However, it also reveals contrasting effects: higher earnings commonality is linked to less accurate and more dispersed earnings forecasts, whereas higher accounting comparability is associated with higher quality earnings forecasts, i.e., more accurate and less dispersed earnings forecasts.