Buy-Side vs. Sell-Side Analysts' Earnings Forecasts

Boris  Groysberg; Paul M. Healy; Craig James Chapman

Article | Financial Analysts Journal | July – August 2008

Buy-Side vs. Sell-Side Analysts' Earnings Forecasts

by Boris Groysberg, Paul M. Healy and Craig James Chapman

Abstract

We compare the earnings forecast performance of analysts at a large buy-side firm to that of sell-side analysts. Our tests show that the buy-side firm analysts make more optimistic and less accurate forecasts than their counterparts on the sell-side. These performance differences appear to be partially explained by the buy-side's higher retention of poor-performing analysts and by differences in performance benchmarks used to evaluate buy- and sell-side analysts.

Keywords: Motivation and Incentives; Business Earnings; Forecasting and Prediction; Performance Effectiveness;

Format: Print

15 pages

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Citation:

Groysberg, Boris, Paul M. Healy, and Craig James Chapman. "Buy-Side vs. Sell-Side Analysts' Earnings Forecasts." Financial Analysts Journal 64, no. 4 (July–August 2008): 25 – 39.

Case | HBS Case Collection | August 2018 (Revised July 2020)

Revenue Recognition at HBP

Paul Healy and Siko Sikochi

In early 2014, Paul Bills, CFO of Harvard Business Publishing (HBP), sat down with David Wan, the company’s CEO, to discuss budget preparations for the coming year. Bills noted that the performance of Corporate Learning, one of HBP’s three business units, would be affected by a business model change for its largest product that required a change in the timing of revenue recognition. Corporate Learning was in the process of revamping its flagship product, Harvard Manage-Mentor (HMM) from version 11.0 (HMM11) to version 12.0 (HMM12). The revamped software would be hosted exclusively on HBP’s server rather than on its clients’ servers, allowing updates to take place continuously. Given the change, accounting standards required HBP to change the recognition of revenue from the date of software delivery (for HMM11) to ratable recognition over its contract life (for HMM12). As Bills and Wan discussed the accounting change, they recognized that its impact on Corporate Learning’s and HBP’s performance could be material and would have to be reflected in the budget. In addition, they wondered how the new accounting would affect the company’s policy for awarding sales incentive compensation on HMM, as well as how they communicated with employees and the firm’s sole shareholder, the Harvard Business School.

Keywords: Accrual Accounting; Budgets and Budgeting; Revenue Recognition; Financial Reporting; Publishing Industry; Education Industry; United States;

Citation:

Healy, Paul, and Siko Sikochi. "Revenue Recognition at HBP." Harvard Business School Case 119-029, August 2018. (Revised July 2020.) View Details

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Buy-Side vs. Sell-Side Analysts' Earnings Forecasts

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