Geographical diversification and analysts' earnings forecasts

Abstract

This paper investigates whether the analysts' task difficulty in forecasting earnings is related to the geographical(foreign) diversification of the firms they follow. We measure the task difficulty of analysts using the two alternative measures of earnings forecast variability. These measures are the mean absolute deviation and standard deviation of earnings forecast among analysts. The results show that the earnings forecasts for MNCs posses higher volatility than domestic firms. These findings are consistent with the notion that analysts have more difficulty in forecasting MNCs than domestic firms. The latter may be attributed to exchange rate volatility.