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A Critique of Cost Behavior and Analysts’ Earnings Forecasts
Siwei Liu

The study showed in this thesis mainly developed a new potential relationship between firms’ cost behavior and properties of analysts’ earnings forecasts and showed how firms’ asymmetric cost behavior influences analysts’ earnings forecasts. The important achievement of this study is to integrates a typical management accounting research topic, cost behavior, with three standard financial accounting topic including accuracy of analysts’ earnings forecasts, analysts’ coverage, and market response to earnings surprises. This author Dan Weiss logically built his three hypotheses, design reasonable researches for these hypotheses and then showed all the results developed from all the tests.
The three important related hypotheses are built on the concept of sticky costs which include increased cost stickiness reduces the accuracy of analysts’ consensus earnings forecasts; sticky cost behavior does not affect analyst coverage; the market response to earnings surprises is weaker for firms with stickier cost behavior. Then during the section of research design, the author used different models to separately test the three hypotheses with mathematical method and logic comparing other real cases and experiences. Then this thesis illustrated three convincing results developed from prior tests with conclusive tables. Results indicate that firms with stickier cost behavior have less accurate analysts’ earnings forecasts than firms with less sticky cost behavior. Moreover, finding shows that cost stickiness influences analysts’ coverage priorities and investors appear to consider sticky cost behavior in forming their beliefs about the value of firms.
Generally, this thesis illustrated a very integrated process of research with an excellent point of view and finally proved satisfactory results. This research’s most impressive achievement is to build on the author’s study approach in exploring...

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