scholarly journals The Effect of Ex Ante Management Forecast Accuracy on the Post-Earnings-Announcement Drift

2012 ◽  
Vol 87 (5) ◽  
pp. 1791-1818 ◽  
Author(s):  
Li Zhang
Keyword(s):  
Earnings Announcements ◽  
Forecast Accuracy ◽  
Data Availability ◽  
Management Forecasts ◽  
Composite Measure ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Management Forecast ◽  
Ex Ante

ABSTRACT I examine the effect of ex ante management forecast accuracy on the post-earnings-announcement drift when management forecasts about next quarter's earnings are bundled with current quarter's earnings announcements. I build a composite measure of ex ante management forecast accuracy that takes into account forecast ability, forecast difficulty, and forecast environment. The results show that the bundled forecasts with higher ex ante accuracy mitigate investors' under-reaction to current earnings and reduce the magnitude of the post-earnings-announcement drift. Data Availability: The data used in this paper are available from the sources listed in the text.

Information Technology Capability, Management Forecast Accuracy, and Analyst Forecast Revisions

2018 ◽  
Vol 32 (3) ◽  
pp. 49-70 ◽  
Author(s):  
Feiqi Huang ◽  
He Li ◽  
Tawei Wang
Keyword(s):  
Forecast Accuracy ◽  
Analyst Forecast ◽  
Management Forecasts ◽  
Forecast Revisions ◽  
It Capability ◽  
Management Forecast ◽  
Prior Literature ◽  
Technology Capability ◽  
Information Technology Capability ◽  
The Relationship

SYNOPSISPrior literature has firmly established the relationship between IT capability and firm performance. In this paper, we extend the research in this field and investigate (1) whether IT capability contributes to management forecast accuracy, and (2) whether IT capability improves the informativeness of management forecasts and enhances the extent to which analysts incorporate management forecasts in their revisions. Using firms listed on InformationWeek 500 as our high IT capability group, we empirically demonstrate that firms with high IT capability are able to increase management forecast accuracy, and that analysts incorporate more information from management forecasts in their revisions if the firm has high IT capability.

Disaggregating Management Forecasts to Reduce Investors’ Susceptibility to Earnings Fixation

2011 ◽  
Vol 86 (1) ◽  
pp. 185-208 ◽  
Author(s):  
W. Brooke Elliott ◽  
Jessen L. Hobson ◽  
Kevin E. Jackson
Keyword(s):  
Voluntary Disclosure ◽  
Experimental Results ◽  
Management Forecasts ◽  
Net Income ◽  
Earnings Guidance ◽  
Earnings Announcement ◽  
Management Forecast ◽  
Important Input ◽  
Potential Alternative ◽  
Management Disclosures

ABSTRACT: This study examines disaggregated management forecasts as a mechanism to reduce investors’ fixation on announced earnings. Our experimental results suggest that investors’ earnings fixation is reduced when they initially observe a disaggregated management forecast (earnings and its components) versus when they observe an aggregated forecast (earnings only). We also provide theory-consistent evidence that this reduction in earnings fixation is associated with investors interpreting the summary net income figure as one of several similarly important evaluation inputs rather than a substantially more important input (relative to its components). Finally, we provide evidence that suggests our results are not bounded by the level of emphasis on net income in the subsequent earnings announcement, and not fully explained by three plausible alternative explanations. Our study extends the voluntary disclosure literature by providing evidence that the form of management disclosures can influence investors’ interpretation of subsequently announced information, and contributes to practice by providing a potential alternative to stopping earnings guidance.

scholarly journals Overconfident Institutions and Their Self-Attribution Bias: Evidence from Earnings Announcements

2020 ◽  
pp. 1-33 ◽  
Author(s):  
Hsin-I Chou ◽  
Mingyi Li ◽  
Xiangkang Yin ◽  
Jing Zhao
Keyword(s):  
Information Asymmetry ◽  
Earnings Announcements ◽  
Earnings Announcement ◽  
Behavioral Bias ◽  
Price Pressure ◽  
Post Earnings Announcement Drift ◽  
Institutional Demand ◽  
Attribution Bias

Abstract Institutional demand for a stock before its earnings announcement is negatively related to subsequent returns. The relation is not attributable to the price pressure of institutional demand and is stronger for stocks with higher information asymmetry and/or greater valuation difficulty. These findings support the notion that overconfident institutions misprice stocks. Following announcements, institutions’ behavior exhibits the outcome-dependent feature of self-attribution bias. Whether they become more overconfident and delay their mispricing correction depends on whether earnings news confirms their preannouncement trades. This behavioral bias also offers a new explanation for the well-known post-earnings-announcement drift.

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.

Investor Trading and the Post-Earnings-Announcement Drift

2011 ◽  
Vol 86 (2) ◽  
pp. 385-416 ◽  
Author(s):  
Benjamin C. Ayers ◽  
Oliver Zhen Li ◽  
P. Eric Yeung
Keyword(s):  
Random Walk ◽  
Earnings Announcements ◽  
Discovery Process ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Earnings Surprises ◽  
Trading Activities ◽  
Investor Trading ◽  
Small Traders ◽  
Price Discovery Process

ABSTRACT: We examine whether the two distinct post-earnings-announcement drifts associated with seasonal random-walk-based and analyst-based earnings surprises are attributable to the trading activities of distinct sets of investors. We predict and find that small (large) traders continue to trade in the direction of seasonal random-walk-based (analyst-based) earnings surprises after earnings announcements. We also find that when small (large) traders react more thoroughly to seasonal random-walk- (analyst-) based earnings surprises at the earnings announcements, the respective drift attenuates. Further evidence suggests that delayed small trades associated with random-walk-based surprises are consistent with small traders’ failure to understand time-series properties of earnings, whereas delayed large trades associated with analyst-based surprises are more consistent with a longer price discovery process. We also find that the analyst-based drift has declined in recent years.

The Effect of Conference Calls on Analyst and Market Underreaction to Earnings Announcements

2005 ◽  
Vol 80 (1) ◽  
pp. 189-219 ◽  
Author(s):  
Michael D. Kimbrough
Keyword(s):  
Earnings Announcements ◽  
Analyst Forecast ◽  
Forecast Errors ◽  
Conference Calls ◽  
Conference Call ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Investor Sophistication ◽  
Two Measures ◽  
Matched Samples

I extend prior research on the information content of conference calls by examining whether they accelerate analysts' and investors' responses to the future implications of currently announced earnings. I find that the initiation of conference calls is associated with a significant reduction in the serial correlation in analyst forecast errors, a measure of initial analyst underreaction. I also find that the initiation of conference calls is associated with significant reductions in two measures of initial investor underreaction: (1) post-earnings announcement drift and (2) the proportion of the total market reaction to firms' earnings announcements that is “delayed” (i.e., that is attributable to post-earnings announcement drift). The reduction in post-earnings announcement drift surrounding conference call initiation is concentrated in the set of sample firms where drift is most severe (i.e., the smallest, least heavily traded sample firms) while the largest, most heavily traded sample firms do not exhibit significant drift either before or after conference call initiation. Robustness tests, including analyses of matched samples of nonconference call firms, indicate that the results are not driven by general increases in analyst and investor sophistication over time or by contemporaneous increases in the information and trading environments of conference call initiators.

The Effect of Reporting Streaks on Ex Ante Uncertainty

2020 ◽  
Vol 66 (8) ◽  
pp. 3771-3787 ◽  
Author(s):  
Thaddeus Neururer ◽  
George Papadakis ◽  
Edward J. Riedl
Keyword(s):  
Stock Returns ◽  
Earnings Announcements ◽  
Earnings Announcement ◽  
Risk Premiums ◽  
Quarterly Earnings ◽  
Earnings Per Share ◽  
Ex Ante ◽  
Variance Risk ◽  
Analyst Earnings ◽  
Lower Uncertainty

This paper predicts and finds that investor uncertainty surrounding a key information release event—the earnings announcement—is decreasing in a firm’s reporting streak. We use two proxies related to investor ex ante uncertainty and corresponding pricing of such uncertainty: option-implied volatilities and variance risk premiums; both are measured with maturities surrounding the impending quarterly earnings announcement. Consistent with prior research, we measure reporting streak as the number of consecutive quarters the firm meets or beats the consensus analyst earnings-per-share forecast. Empirical results confirm expectations that the two uncertainty-related constructs are decreasing in the length of the reporting streak. These results, combined with further evidence documenting that lower uncertainty leads to lower stock returns surrounding the earnings announcements, suggest that longer reporting streaks reflect lower risk during earnings announcements. This paper was accepted by Shiva Rajgopal, accounting.

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