Organization capital and analysts' forecasts

Abstract

We conjecture that a firm's organization capital increases its information complexity and has an adverse effect on the accuracy of analysts' earnings. Using data on analysts' reports for U.S. firms, we find that analysts' forecasts are likely to be more biased and less accurate when they cover high organization-capital firms. Our results further indicate that analysts tend to issue more optimistic forecasts for firms with higher organization capital due to the uncertain and positive effect of organization capital on firm value. Overall, our findings suggest that a firm's organization capital is associated with analysts' bias and accuracy.