Hideyuki Hao Sun

Earnings forecasts by financial analysts are critical to guiding investment decisions and corporate valuations. This study examines how forecast sequence (disaggregation vs. aggregation) interacts with initial optimism (presence vs. absence) to shape the accuracy of earnings predictions. A 2×2 between-subjects experimental design was employed, involving 97 professional financial analysts from leading U.S.-based brokerage firms with extensive experience in equity research. These analysts, representative of the target population making critical market forecasts, were tasked with predicting the annual earnings per share (EPS) of a hypothetical global hospitality firm, Firm X, listed on the New York Stock Exchange. The sample was chosen to ensure high external validity by mirroring real-world practices and decision contexts in financial forecasting. Initial optimism was manipulated using “strong-buy” and “neutral” stock recommendations, while forecast sequence was adjusted by requiring updates either after each management announcement (disaggregation) or collectively (aggregation). Results demonstrate that disaggregation amplifies optimistic bias in the presence of initial optimism, resulting in inflated earnings forecasts. This effect is attributed to confirmation bias. In contrast, no significant differences in forecasts were observed between sequences in the absence of initial optimism. These findings offer practical insights into mitigating cognitive biases in financial analysis, emphasizing the dual-edged role of disaggregation. Future research may extend these findings across diverse industries and forecasting contexts to further refine strategies for enhancing decision-making accuracy and investor trust.

This study examines whether paying audit committee members a higher proportion of cash, rather than equity, improves the quality of financial oversight. Using 7,159 firm-year observations from publicly listed non-financial U.S. companies between 2005 and 2023, this paper focuses on firms with standardized financial disclosures and comparable audit committee structures. The sample begins in 2005 to reflect the regulatory environment following the implementation of Section 404 of the Sarbanes-Oxley Act, which requires companies to assess and disclose the effectiveness of internal controls. The results show that a higher proportion of cash compensation is significantly associated with lower discretionary accruals, indicating stronger earnings quality. This relationship holds across alternative model specifications and accrual quality measures. The findings suggest that cash-based pay may enhance audit committee independence by reducing incentives tied to stock performance. For companies and regulators, the study underscores the importance of compensation design – favoring cash over equity may help strengthen financial reporting oversight and reduce earnings management, particularly in complex or high-risk firms.