Do financial analysts decompose past earnings when making future earnings forecasts? Available to Purchase

Explains why financial analysts could find it useful to separate past earnings into discretionary accruals and earnings before discretionary accruals; referring to related research to develop hypotheses on the effects of both on the change in analysts’ earnings forecasts for the subsequent year. Tests these on a sample of 142 US manufacturing firms and presents the results which suggest that analysts do not decompose past earnings. Discusses three possible interpretations of the results and supports Sloan’s (1996) finding that the capital market does not seem to price accruals rationally.