An Investigation of Asymmetric Earnings Forecasts of Japanese Financial Analysts Available to Purchase

A number of U.S. studies have documented an optimistic bias in analysts’ forecasts of earnings. This study investigates whether the optimistic bias and asymmetric behavior of forecast errors found in most U.S. studies exists in Japan. We find that for firms reporting profits, Japanese analysts’ forecasts have much greater accuracy and exhibit a small pessimistic bias in comparison to firms reporting losses, where analysts’ forecasts exhibit extremely poor accuracy and an extremely significant optimistic bias. The lack of ability to forecast losses is due to their transitory nature and not due to earnings management. Forecast accuracy and bias are not related to firm size, but are related to the magnitude of reported lossess and profits.