Abstract:  Prior studies find that analysts often issue optimistic forecasts before the issue of companies’ earnings, and thus lead to forecast bias. With the sample from Chinese stock market and methods of ordinary least squares (OLS) and the least absolute deviation (LAD) regressions, the paper tests whether analysts’ earnings forecasts take account of the implications of accounting conservatism. After controlling those elements thought to affect analysts’ forecast, we find that forecasts’ under-reaction to bad vs. good news is negatively related to the magnitude of BSR. This evidence demonstrates that, in general, analysts’ earnings forecasts do not fully take account of the implications of accounting conservatism.

Key words: analysts&rsquo, earnings forecast, accounting conservatism, asymmetric timeliness, balance sheet reserves