Economic Incentives for Analysts Play Role in Determining Street Earnings

Even though investors use street earnings as a key valuation measure, little is known about analysts` rationale when determining street earnings. Street earnings are an adapted version of earnings based on modifications that are decided on a firm-by-firm basis and reflect analysts` decisions to include or exclude certain expenses. In a new study, a University of Missouri researcher found that analysts` self-interests often influence the value of street earnings, which makes street earnings less useful for predicting future earnings of high-growth stocks.

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