Concurrent Earnings Announcements and Analysts' Information Production

2019 ◽  
Vol 95 (1) ◽  
pp. 165-189 ◽  
Author(s):  
Matthew Driskill ◽  
Marcus P. Kirk ◽  
Jennifer Wu Tucker
Keyword(s):  
Earnings Announcements ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Limited Attention ◽  
Conference Calls ◽  
Stock Recommendations ◽  
Rich Information ◽  
Sample Firm ◽  
Jel Classifications

ABSTRACT We examine whether financial analysts are subject to limited attention. We find that when analysts have another firm in their coverage portfolio announcing earnings on the same day as the sample firm (a “concurrent announcement”), they are less likely to issue timely earnings forecasts for the sample firm's subsequent quarter than analysts without a concurrent announcement. Among the analysts who issue timely earnings forecasts, the thoroughness of their work decreases as their number of concurrent announcements increases. In addition, analysts are more sluggish in providing stock recommendations and less likely to ask questions in earnings conference calls as their number of concurrent announcements increases. Moreover, when analysts face concurrent announcements, they tend to allocate their limited attention to firms that already have rich information environments, leaving behind firms in need of attention. Overall, our evidence suggests that even financial analysts, who serve as information specialists, are subject to limited attention. JEL Classifications: G10; G11; G17; G14. Data Availability: Data are publicly available from the sources identified in the paper.

Friends in Need Are Friends Indeed: An Analysis of Social Ties between Financial Analysts and Mutual Fund Managers

2018 ◽  
Vol 94 (1) ◽  
pp. 153-181 ◽  
Author(s):  
Zhaoyang Gu ◽  
Zengquan Li ◽  
Yong George Yang ◽  
Guangqing Li
Keyword(s):  
Mutual Fund ◽  
Social Ties ◽  
Financial Analysts ◽  
Data Availability ◽  
Fund Manager ◽  
Mutual Fund Managers ◽  
Business Decisions ◽  
The Public ◽  
Fund Managers ◽  
Jel Classifications

ABSTRACT We examine how hometown, school, and workplace ties between financial analysts and mutual fund managers affect their business decisions. We show that a fund manager is more likely to hold stocks covered by analysts with whom she is socially connected, and that she also makes higher profits from these holdings. Such social tie-related holding returns are higher among more opaque firms. In return, a fund manager tends to cast her star analyst votes in favor of her connected analysts, and her fund company is more likely to allocate trading commissions to her connected analysts' brokerages. Additional tests indicate that analysts more actively acquire information (through conducting corporate site visits) and issue more optimistically biased recommendations for stocks held by fund managers with whom they are connected. Overall, our results illustrate the pronounced influence of social networks on the behaviors of analysts and fund managers. JEL Classifications: G10; G23; M40. Data Availability: Data are available from the public sources cited in the text.

Analysts, Taxes, and the Information Environment

2019 ◽  
Vol 42 (1) ◽  
pp. 103-131 ◽  
Author(s):  
Sangwan Kim ◽  
Andrew P. Schmidt ◽  
Kelly Wentland
Keyword(s):  
Accounting Information ◽  
Earnings Forecasts ◽  
Information Environment ◽  
Data Availability ◽  
Forecast Errors ◽  
Complete Understanding ◽  
The Public ◽  
Earnings Information ◽  
Earnings Components ◽  
Jel Classifications

ABSTRACT This paper investigates the extent to which analysts incorporate tax-based earnings information into their earnings forecasts relative to other earnings information. We find that analysts' misreaction to tax-based earnings information is distinct from their misreaction to other (nontax) accounting information, on average. We then show that analysts differ in their misestimation of tax and other (nontax) earnings components only when firms have weak information environments; when firms have strong information environments, analysts' forecasts fully incorporate tax-based earnings information and exhibit no difference incorporating tax-based earnings information relative to other accounting information. Our evidence suggests that, on average, forecasting tax-based earnings information is more difficult for analysts relative to forecasting other accounting information. However, access to appropriate information and resources enables analysts to better process tax information. Overall, we contribute to the literature by providing a more complete understanding of the source of analysts' tax-related forecast errors. JEL Classifications: H25; M41; D82; G14. Data Availability: Data are available from the public sources identified in the text.

How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements

2019 ◽  
Vol 4 (1) ◽  
pp. 157-171
Author(s):  
Shana M. Clor-Proell ◽  
D. Eric Hirst ◽  
Lisa Koonce ◽  
Nicholas Seybert
Keyword(s):  
Earnings Announcements ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Earnings Forecast ◽  
Multiple Points ◽  
Earnings Announcement ◽  
Carry Over

Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers. Data Availability: Contact the authors.

How the Interplay between Financial and Nonfinancial Measures Affects Management Forecasting Behavior

2019 ◽  
Vol 31 (3) ◽  
pp. 41-63 ◽  
Author(s):  
Joseph F. Brazel ◽  
Bradley E. Lail
Keyword(s):  
Earnings Forecasts ◽  
Data Availability ◽  
Forecast Errors ◽  
Earnings Growth ◽  
Management Forecast ◽  
Nonfinancial Measures ◽  
External Stakeholders ◽  
Jel Classifications ◽  
Future Management

ABSTRACT This study examines how the interplay between financial and nonfinancial measures (NFMs) affects management forecasting behavior. Building on the knowledge that NFMs are typically aligned with actual earnings and are likely incorporated into earnings forecasts, we investigate if the level of divergence between changes in NFMs and contemporaneous changes in earnings influences management forecasting behavior. We hand collect company-specific NFMs disclosed in 10-K filings and describe how a greater divergence between NFMs and earnings (i.e., NFM changes substantially outpacing earnings growth, or vice versa) is associated with greater uncertainty about the underlying business. As such, in more divergent settings, we observe that management is less likely to issue guidance. Consistent with our theory, for managers that do provide guidance in more divergent settings, management forecast errors increase. Last, we provide evidence that external stakeholders can use the level of divergence to predict future management forecasting behavior. JEL Classifications: G14; M40; M41. Data Availability: The data used in this study are publicly available from the sources indicated in the text.

Recommendation-Forecast Consistency and Earnings Forecast Quality

2013 ◽  
Vol 27 (3) ◽  
pp. 451-467 ◽  
Author(s):  
Lawrence D. Brown ◽  
Kelly Huang
Keyword(s):  
Earnings Forecasts ◽  
Firm Valuation ◽  
Data Availability ◽  
Earnings Forecast ◽  
Market Reactions ◽  
Stock Recommendations ◽  
Ex Ante ◽  
Forecast Quality

SYNOPSIS: We investigate the implications of recommendation-forecast consistency for the informativeness of stock recommendations and earnings forecasts and the quality of analysts' earnings forecasts. Stock recommendations and earnings forecasts are often issued simultaneously and evaluated jointly by investors. However, the two signals are often inconsistent with each other. Defining a recommendation-forecast pair as consistent if both of them are above or below their existing consensus, we find that 58.3 percent of recommendation-forecast pairs are consistent in our sample. We document that consistent pairs result in much stronger market reactions than inconsistent pairs. We show that analysts making consistent recommendation forecasts make more accurate and timelier forecasts than do analysts making inconsistent recommendation forecasts, suggesting that consistent analysts make higher-quality earnings forecasts. We extend the literature on informativeness of analyst research by showing that recommendation-forecast consistency is an important ex ante signal regarding both firm valuation and earnings forecast quality. Investors and researchers can use consistency as a salient, ex ante signal to identify more informative analyst research and superior earnings forecasts. Data Availability: All data are available from public sources.

scholarly journals Disclosure Tone and Shareholder Litigation

2011 ◽  
Vol 86 (6) ◽  
pp. 2155-2183 ◽  
Author(s):  
Jonathan L. Rogers ◽  
Andrew Van Buskirk ◽  
Sarah L. C. Zechman
Keyword(s):  
Earnings Announcements ◽  
General Purpose ◽  
Data Availability ◽  
Litigation Risk ◽  
Shareholder Litigation ◽  
Disclosure Tone ◽  
Context Specific ◽  
Jel Classifications

ABSTRACT We examine the relation between disclosure tone and shareholder litigation to determine whether managers' use of optimistic language increases litigation risk. Using both general-purpose and context-specific text dictionaries to quantify tone, we find that plaintiffs target more optimistic statements in their lawsuits and that sued firms' earnings announcements are unusually optimistic relative to other firms experiencing similar economic circumstances. These findings are consistent with optimistic language increasing litigation risk. In addition, we find incrementally greater litigation risk when managers are both unusually optimistic and engage in abnormal selling. This finding suggests that firms can mitigate litigation risk by ensuring that optimistic statements are not contradicted by insider selling. Finally, we find that insider selling is associated with litigation risk only when contemporaneous disclosures are unusually optimistic. JEL Classifications: G38; K22; M41; M48. Data Availability: Data are available from sources indicated in the text.

Monitors or Predators: The Influence of Institutional Investors on Sell-Side Analysts

2012 ◽  
Vol 88 (1) ◽  
pp. 137-169 ◽  
Author(s):  
Zhaoyang Gu ◽  
Zengquan Li ◽  
Yong George Yang
Keyword(s):  
Mutual Fund ◽  
Institutional Investors ◽  
Direct Evidence ◽  
Financial Analysts ◽  
Data Availability ◽  
Stock Recommendations ◽  
Analyst Bias ◽  
The Relationship ◽  
Unique Dataset

ABSTRACT: Regulators and the investment community have been concerned that institutional investors pressure financial analysts through trading commission fees to issue optimistic opinions in support of their stock positions. We use a unique dataset that identifies mutual fund companies' allocation of trading commission fees to individual brokerages and provide direct evidence on this issue. In particular, we show that for stocks in which the fund companies have taken large positions, analysts are more optimistic in their stock recommendations when their brokerages receive trading commission fees from these fund companies. The relationship is stronger when the commission fee pressure is greater. The market reacts less favorably to the “Strong Buy” recommendations of analysts facing greater commission fee pressure. The funds also respond negatively to such recommendations in making portfolio adjustments. These results point to a source of analyst bias that has been little explored in the literature. Data Availability: The data are publically available from the sources identified in the paper.

Characteristics and Implications of Long-Term Earnings Guidance

2020 ◽  
Vol 6 (1) ◽  
pp. 33-54
Author(s):  
Andrew C. Call ◽  
Adam M. Esplin ◽  
Bin Miao
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Real Earnings Management ◽  
Limited Attention ◽  
Earnings Guidance ◽  
Short Term ◽  
Operating Environments ◽  
Growth Forecasts

ABSTRACT We examine a form of voluntary disclosure that has received limited attention to date, namely, managers' long-term guidance for earnings three to five years in advance. We identify 1,739 long-term earnings forecasts issued by 295 unique firms from 2000 to 2012 and find that relative to firms that issue only short-term earnings guidance, those that also issue long-term guidance are larger, have more certain operating environments, and are followed by analysts who are more likely to issue long-term growth forecasts. Long-term guidance is informative to investors and analysts incorporate the news contained in these forecasts into their own long-term growth forecasts. We also document that the issuance of long-term guidance is associated with more (less) investor focus on long-term (short-term) earnings news. Last, we find mixed evidence on the association between long-term guidance and real earnings management decisions. Our study adds to the literature on managers' voluntary disclosure choices. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G17; M41.

scholarly journals Accounting Restatements and the Timeliness of Disclosures

2011 ◽  
Vol 25 (4) ◽  
pp. 609-629 ◽  
Author(s):  
Brad A. Badertscher ◽  
Jeffrey J. Burks
Keyword(s):  
Earnings Announcements ◽  
Financial Statements ◽  
Securities And Exchange Commission ◽  
Negligible Effect ◽  
Data Availability ◽  
Reliable Information ◽  
Advisory Group ◽  
Quarterly Earnings ◽  
Catch Up ◽  
Jel Classifications

SYNOPSIS Regulators are concerned that during the process of restating financial statements, firms fail to provide timely progress updates, and delay earnings announcements and regulatory filings. To reduce these perceived lags in disclosure, an advisory group to the Securities and Exchange Commission recommends more use of catch-up adjustments rather than restatements to correct accounting errors. Some investor groups oppose the recommendations because they fear that preparers will begin to correct important errors through catch-up adjustments, which are less transparent than restatements. We inform this debate by examining (1) the length of disclosure lags around restatements to understand the extent of the problem, and (2) the causes of disclosure lags to evaluate whether the reforms would address the root causes of the lags. We find that lengthy lags are uncommon and appear to be largely unavoidable consequences of fraud investigations. When fraud is a factor, the firm typically takes weeks or months to release restatement details, quarterly earnings, and SEC filings, likely because investigations are necessary to restore the firm's ability to produce reliable information. When fraud is not a factor, the firm typically discloses the restatement's earnings impact within a day of the initial restatement announcement, and delays the quarterly earnings announcement and SEC filing by less than a week. Although fraud is by far the most economically significant cause of lags, we also find that lags increase when a restatement involves multiple, long-standing, or large errors. Finally, we show that the restatements targeted by the reforms tend to have the shortest lags, even among non-fraudulent restatements. Thus, the proposed reforms would have a negligible effect on disclosure timeliness because the targeted restatements tend to have short lags to begin with, and because long lags appear to be caused by inherent constraints on producing reliable information. JEL Classifications: M41, G38. Data Availability: Data are available from sources identified in the paper.

Changes in Analysts' Information around Earnings Announcements

2002 ◽  
Vol 77 (4) ◽  
pp. 821-846 ◽  
Author(s):  
Orie E. Barron ◽  
Donal Byard ◽  
Oliver Kim
Keyword(s):  
Earnings Announcements ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Forecast Errors ◽  
Accounting Disclosures

In this study we examine changes in the precision and the commonality of information contained in individual analysts' earnings forecasts, focusing on changes around earnings announcements. Using the empirical proxies suggested by the Barron et al. (1998) model that are based on the across-analyst correlation in forecast errors, we conclude that the commonality of information among active analysts decreases around earnings announcements. We also conclude that the idiosyncratic information contained in these individual analysts' forecasts increases immediately after earnings announcements, and that this increase is more significant as more analysts revise their forecasts. These results are consistent with theories positing that an important role of accounting disclosures is to trigger the generation of idiosyncratic information by elite information processors such as financial analysts (Kim and Verrecchia 1994, 1997).

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