This study examines the effect of the implementation of conservative accounting policies by firms on analysts' annual earnings absolute forecast errors and forecast dispersion. Three aggregate accounting-based conservatism measures were used to estimate the level of conservatism in accounting practice. After controlling for the effects of industry, forecast age, number of analysts following the firm, firm size, earnings stability, and risk, accounting conservatism was found to be associated with higher forecast errors and forecast dispersion. Furthermore, the tests of robustness indicate that the above results are not driven by earnings predictability, the undue influence of outliers, or earnings management.
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