Cardiff Working Papers in Accounting and Finance

This study investigates the association between the ownership structure of a firm and the accuracy of individual one-year-ahead earnings forecasts made by UK analysts. The relationship is explored in the presence of individual analyst and firm-specific characteristics using a research-tailored dataset comprising 11,659 individual analysts’ forecasts made over the period, 1996 to 2001. To address the multidimensional variation in the dependent variables employed in the study (i.e., a forecast made by analyst i for firm j in year t) and the unique nature of the research question (i.e., the combined use of firm and analyst-specific characteristics), we use an analystfirm fixed effects estimator. We are not aware of any UK studies in the field that investigate the role of ownership structure of a firm in determining the accuracy of analysts’ forecasts. Furthermore, to the best of our knowledge, use of the analystfirm fixed effect estimator in this context is also novel. The results of the study suggest that insider ownership is associated with forecast accuracy in a nonlinear way. Moreover, although analysts are more optimistic for firms with a higher institutional ownership, institutional shareholders seem to be ineffective at addressing the agency disclosure problem. As a result, forecasts made for high institutional ownership firms are less accurate.