J. Randall Woolridge, Professor of Finance
Woolridge and Patrick Cusatis of Penn State Harrisburg examine Wall Street analysts’ earnings per share (EPS) forecasts to determine whether analyst bias still exists despite the 2003 Global Analyst Research Settlement aimed at rooting out analyst bias. They look at analysts' long-term (three to five years) and one-year ahead annual growth rate estimates for all companies from 1984 to 2006. Their findings show that, for both types of forecasts, analysts consistently project EPS growth rates much higher than actual growth and that firms rarely meet or exceed their projected EPS growth rates. Over the entire time period, analysts' long-term forecasted EPS growth averaged 14.7 percent, but companies only averaged actual long-term EPS growth of 9.1 percent. Analyst bias may be the result of career concerns, conflicts of interest, or firm familiarity.