Doctor of Philosophy (PhD)



Document Type



Accounting standards require firms to recognize an inventory loss when the inventory's market value (or net realizable value) falls below cost. Usually, inventory loss recognition adversely impacts gross margin. Given the negative attention it draws from market participants, managers often delay reporting an inventory loss. Prior research finds that the market reacts more strongly to disaggregated analysts’ forecasts because it perceives analysts who issue disaggregated forecasts to be more knowledgeable about the firm. I predict and find that managers are more likely to recognize an expected inventory loss when at least one analyst following the firm issues a disaggregated gross margin (GM) forecast compared to when they only issue EPS forecasts. The likelihood of managers recognizing an expected inventory loss increases as a greater number of analysts following the firm issue GM forecasts. When analysts revise their GM forecasts downwards, it increases the manager’s likelihood of recognizing an expected inventory loss, but downward revision of sales or EPS forecasts have no such impact. Moreover, managers are less likely to postpone recognizing an inventory loss to meet earnings targets when analysts revise their GM forecasts downwards. My findings highlight the important role of analysts’ disaggregated forecasts in constraining manager’s behavior.

Committee Chair

Reichelt, Kenneth J.



Available for download on Tuesday, June 27, 2028

Included in

Accounting Commons