Cost Behavior and Analysts' Earnings Forecasts

This study examines how firms' asymmetric cost behavior influences analysts' earnings forecasts, primarily the accuracy of analysts' consensus earnings forecasts. Results indicate that firms with stickier cost behavior have less accurate analysts' earnings forecasts than firms with less sticky cost behavior. Furthermore, findings show that cost stickiness influences analysts' coverage priorities and investors appear to consider sticky cost behavior in forming their beliefs about the value of firms. This study integrates a typical management accounting research topic, cost behavior, with three standard financial accounting topics (namely, accuracy of analysts' earnings forecasts, analysts' coverage, and market response to earnings surprises).