Unlike institutional investors, who have expertise in collecting and analyzing firm information to predict firms’ future performance, individual investors have a limited ability to conduct this task. Therefore, individual investors are known to commonly rely on financial analysts’ earnings forecasts, which are freely available to them. However, as demonstrated by numerous studies, financial analysts’ forecasts are not always accurate and free from bias. Drawing on screening theory and the innate financial and structural differences between highly franchised restaurants and their less franchised peers, the current study showed that analysts provide more accurate and less optimistically biased forecasts for the former than the latter. However, the positive impact of an additional number of analysts on the accuracy of forecasts was weaker for the former than the latter. The current study can help individual investors in the restaurant industry improve their understanding of financial analysts’ earnings forecasts and make better-informed investment decisions.
AhmadS (2017) Factors Influencing individual investors’ behavior: an empirical study of Pakistan financial markets. Journal of Business and Financial Affairs06(6): 1–8.
2.
AkbasFMeschkeFWintokiMB (2016) Director networks and informed traders. Journal of Accounting and Economics62(1): 1–23.
3.
AliADurneyMTFischJE, et al. (2019) “Implicit Communication and Enforcement of Corporate Disclosure Regulation”. Brussels, Belgium: European Corporate Governance Institute–Finance Working Paper, 20–46.
4.
AsciogluAHegdeSPMcDermottJB (2008) Information asymmetry and investment–cash flow sensitivity. Journal of Banking and Finance32(6): 1036–1048.
5.
BairdPL (2020) Do investors recognize biases in securities analysts’ forecasts?Review of Financial Economics38(4): 623–634.
6.
BarthMEKasznikRMcNicholsMF (2001) Analyst coverage and intangible assets. Journal of Accounting Research39(1): 1–34.
7.
BerghDDPeruffoEChiuWT, et al. (2020) Market response to divestiture announcements: a screening theory perspective. Strategic Organization18(4): 547–572.
8.
BerkanALeonardoBStefanoM (2021) Media coverage, corporate social irresponsibility conduct, and financial analysts' performance. Corporate Social Responsibility and Environmental Management28(5): 1456–1470.
9.
BhagwatYWarrenNLBeckJT, et al. (2020) Corporate sociopolitical activism and firm value. Journal of Marketing84(5): 1–21.
10.
BhushanR (1989) Firm characteristics and analyst following. Journal of Accounting and Economics11(2-3): 255–274.
11.
BradshawMHuangATanH (2014) “Analyst Target Price Optimism Around the World”. Boston College: Working paper.
12.
BrownLDCallACClementMB, et al. (2015) Inside the “black box” of sell-side financial analysts. Journal of Accounting Research53(1): 1–47.
13.
BrownLDCallACClementMB, et al. (2019) Managing the narrative: investor relations officers and corporate disclosure. Journal of Accounting and Economics67(1): 58–79.
14.
ByardDLiYWeintropJ (2006) Corporate governance and the quality of financial analysts’ information. Journal of Accounting and Public Policy25(5): 609–625.
15.
CaiY (2013) Graduate employability: a conceptual framework for understanding employers’ perceptions. Higher Education65(4): 457–469.
ChangJWChoiHM (2017) Analyst optimism and incentives under market uncertainty. Financial Review52(3): 307–345.
18.
ChoiSLeeSChoiK, et al. (2018) Investment–cash flow sensitivities of restaurant firms: a moderating role of franchising. Tourism Economics24(5): 560–575.
CollaERuiz-MolinaEChastenet De GeryC, et al. (2020) Franchisee’s entrepreneurial orientation dimensions and performance. Evidence from France. International Review of Retail Distribution and Consumer Research30(5): 538–554.
21.
ConnellyBLShiWChengX, et al. (2021) Short sellers: a screening theory perspective on B2B relationships. Journal of Business Research134: 393–404.
ElbadryAGounopoulosDSkinnerF (2015) Governance quality and information asymmetry. Financial Markets, Institutions and Instruments24(2-3): 127–157.
27.
EleswarapuVRThompsonRVenkataramanK (2004) The impact of Regulation Fair Disclosure: trading costs and information asymmetry. Journal of Financial and Quantitative Analysis39(2): 209–225.
28.
EtemadiHAzarABabaieS (2017) The value relevance of net financial expenses during the period of imposing sanctions: the case of Iran. International Journal of Finance and Managerial Accounting1(4): 41–53.
29.
FengMMcVayS (2010) Analysts’ incentives to overweight management guidance when revising their short-term earnings forecasts. The Accounting Review85(5): 1617–1646.
30.
FirthMGiftM (1999) An international comparison of analysis' earnings forecast accuracy. International Advances in Economic Research5(1): 56–64.
31.
FloresEFasanMMendes-da-SilvaW, et al. (2019) Integrated reporting and capital markets in an international setting: the role of financial analysts. Business Strategy and the Environment28(7): 1465–1480.
32.
FortCP (1997) Analysts forecast accuracy and the presentation of A mandated accounting change. Journal of Applied Business Research13(4): 93–106.
GillisWECombsJGKetchenDJJr (2014) Using resource–based theory to help explain plural form franchising. Entrepreneurship Theory and Practice38(3): 449–472.
36.
GistWEAbdul WahabEA (2021) Political patronage, audit quality, and the properties of analysts' earnings forecasts in Malaysia. Journal of International Accounting Research20(1): 49–78.
37.
GleasonCAMillsLF (2008) Evidence of differing market responses to beating analysts’ targets through tax expense decreases. Review of Accounting Studies13(2): 295–318.
38.
GuillemetteMFinkeMSGilliamJ (2012) Risk tolerance questions to best determine client portfolio allocation preferences. Journal of Financial Planning25(5): 36–44.
39.
HarringtonR (2001) Environmental uncertainty within the hospitality industry: exploring the measure of dynamism and complexity between restaurant segments. Journal of Hospitality and Tourism Research25(4): 386–398.
40.
HollieDShanePBZhaoQ (2017) The role of financial analysts in stock market efficiency with respect to annual earnings and its cash and accrual components. Accounting and Finance57(1): 199–237.
41.
HuttonAPLeeLFShuSZ (2012) Do managers always know better? The relative accuracy of management and analyst forecasts. Journal of Accounting Research50(5): 1217–1244.
42.
IsmailR (2011) Gender wage differentials in the Malaysian services sector. African Journal of Business Management5(19): 7781.
43.
KanagaretnamKLoboGJWhalenDJ (2007) Does good corporate governance reduce information asymmetry around quarterly earnings announcements?Journal of Accounting and Public Policy26(4): 497–522.
44.
KhanSKalelkarRMillerSR, et al. (2018) Executive migration: how information cues from departing firms and the labor market affect shareholder value. Corporate Governance: An International Review26(4): 293–308.
45.
KhuongNVLiemNTMinhMTH (2020) Earnings management and cash holdings: evidence from energy firms in Vietnam. Journal of International Studies13(1): 247–261.
46.
KohYRhouYLeeS, et al. (2018) Does franchising alleviate restaurants’ vulnerability to economic conditions?Journal of Hospitality and Tourism Research42(4): 627–648.
47.
KothariSPShuSWysockiPD (2009) Do managers withhold bad news?Journal of Accounting Research47(1): 241–276.
48.
KothariSPSoEVerdiR (2016) Analysts’ forecasts and asset pricing: a survey. Annual Review of Financial Economics8: 197–219.
49.
KristabelAJWijayaRE (2021) Does the market respond to management aggressiveness?AKRUAL: Jurnal Akuntansi13(1): 26–40.
50.
KwonSS (2002) Financial analysts’ forecast accuracy and dispersion: high-tech versus low-tech stocks. Review of Quantitative Finance and Accounting19: 65–91.
51.
LawrenceA (2013) Individual investors and financial disclosure. Journal of Accounting and Economics56(1): 130–147.
52.
LeeJEGhiselliRF (2011) The hidden effect of intangible financial information on the market value of hospitality firms in the United States. Journal of Foodservice Business Research14(4): 393–404.
53.
LeeKHaI (2014) How do economic recessions affect the US restaurant industry?Journal of Foodservice Business Research17(4): 353–362. Vancouver.
54.
LeungH (2011) Analysts earnings forecasts distribution. International Journal of Banking and Finance8(3): 37–53.
LiuCWangTYaoLJ (2014) XBRL’s impact on analyst forecast behavior: an empirical study. Journal of Accounting and Public Policy33(1): 69–82.
57.
LoK (2012) What do analysts do? Discussion of “Information interpretation or information discovery: which role of analysts do investors value more?”. Review of Accounting Studies17: 642–648.
58.
LohRKStulzRM (2011) When are analyst recommendation changes influential?Review of Financial Studies24(2): 593–627.
MaMZhaoWWanG, et al. (2022) Specialization versus diversity: the role of city size in tourist cities. Tourism Economics29: 13548166221125840.
61.
MaaloulABen AmarWZeghalD (2016) Voluntary disclosure of intangibles and analysts’ earnings forecasts and recommendations. Journal of Applied Accounting Research17(4): 421–439.
62.
MadanogluMCastrogiovanniGJ (2018) Franchising proportion and network failure. Small Business Economics50: 697–715.
63.
MadanogluMLeeKCastrogiovanniGJ (2013) Does franchising pay? Evidence from the restaurant industry. Service Industries Journal33(11): 1003–1025.
64.
MatheK (2012) Food safety, labor costs, and the effects on quick service restaurant revenues. Journal of Foodservice Business Research15(4): 398–410.
65.
MatsumotoDA (2002) Management's incentives to avoid negative earnings surprises. The Accounting Review77(3): 483–514.
66.
MauriAJLinJNeiva De FigueiredoJ (2013) The influence of strategic patterns of internationalization on the accuracy and bias of earnings forecasts by financial analysts. International Business Review22(4): 725–735.
67.
MburuHTangAP (2018) Voluntary clawback adoption and analyst following, forecast accuracy, and bias. Journal of Accounting and Finance18(2): 106–122.
68.
MerkleyKMichaelyRPacelliJ (2017) Does the scope of the sell-side analyst industry matter? An examination of bias, accuracy, and information content of analyst reports. The Journal of Finance72(3): 1285–1334.
69.
MunSGJangS (2022) Explaining the asset growth anomaly in the restaurant industry: motivations and consequences. Tourism Economics28(1): 62–82.
70.
MunSGPaekSWooL, et al. (2019) Is board of director compensation excessive in restaurant firms?International Journal of Hospitality Management82: 149–158.
71.
NardiPCCRibeiroEMSBuenoJLO, et al. (2022) The influence of cognitive biases and financial factors on forecast accuracy of analysts. Frontiers in Psychology12: 773894.
72.
OsterriederDVentosa-SantaulàriaDVera-ValdésJE (2019) The VIX, the variance premium, and expected returns. Journal of Financial Econometrics17(4): 517–558.
73.
OzdemirOErkmenEKimM (2020) Corporate social responsibility and idiosyncratic risk in the restaurant industry: does brand diversification matter?International Journal of Contemporary Hospitality Management32: 2925–2946.
74.
RhouYLiYSingalM (2019) Does managerial ownership influence franchising in restaurant companies?International Journal of Hospitality Management78: 122–130.
75.
RichardsonVJ (2000) Information asymmetry and earnings management: some evidence. Review of Quantitative Finance and Accounting15: 325–347.
76.
RidgeJWIngramAAbdurakhmonovM, et al. (2019) Market reactions to non‐market strategy: congressional testimony as an indicator of firm political influence. Strategic Management Journal40(10): 1644–1667.
77.
SalernoDJeppsonN (2013) Earnings forecast optimism for US vs. Non-US firms. International Business and Economics Research Journal12(11): 1491–1502.
78.
SeoK (2016) The effect of franchising on debt maturity in the US restaurant industry. Tourism Economics22(6): 1404–1422.
79.
SeoKSohJSharmaA (2018) Do financial constraints affect the sensitivity of investment to cash flow? New evidence from franchised restaurant firms. Tourism Economics24(6): 645–661.
SongSParkSLeeS (2019) Does franchising reduce geographically diversified restaurant firms’ risk?International Journal of Contemporary Hospitality Management31: 161–179.
83.
SunKAParkSHeZ (2019) Effect of franchising on restaurant firms’ risk evaluations in the bond market. International Journal of Hospitality Management83: 19–27.
84.
TangCHH (2015) Determinants of commodity price risk exposure in the restaurant industry: an analysis by commodity price cycles. International Journal of Hospitality Management45: 121–129.
UyarAKoseogluMAKuzeyC, et al. (2022) Does firm strategy influence corporate social responsibility and firm performance? Evidence from the tourism industry. Tourism Economics29: 13548166221102806.
87.
VaughanYKohY (2022) Better-connected boards and their influence on corporate social responsibility: evidence from US restaurant industry. Tourism Economics29: 13548166221124974.
WaltherBRWillisRH (2013) Do investor expectations affect sell-side analysts’ forecast bias and forecast accuracy?Review of Accounting Studies18(1): 207–227.
90.
WangJYangM (2013) On the risk return relationship. Journal of Empirical Finance21: 132–141.
91.
WangSWeiCHanL (2017) Do business relationships affect the accuracy of analyst earnings forecasts? Evidence from China. Asia-Pacific Journal of Financial Studies46(1): 155–177.
92.
WangMZhaoWTaoY (2021) Does voluntary disclosure on an internet platform affect analyst forecast accuracy?Applied Economics Letters29: 1547–1555.
93.
WeissD (2010) Cost behavior and analysts’ earnings forecasts. The Accounting Review85(4): 1441–1471.
WielandMM (2011) Identifying consensus analysts’ earnings forecasts that correctly and incorrectly predict an earnings increase. Journal of Business Finance and Accounting38(5-6): 574–600.
96.
XuNJiangXChanKC, et al. (2013) Analyst coverage, optimism, and stock price crash risk: evidence from China. Pacific-Basin Finance Journal25: 217–239.
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
