Do Analysts Say Anything About Earnings Without Revising Their Earnings Forecasts?

2018 ◽  
Vol 94 (2) ◽  
pp. 29-52 ◽  
Author(s):  
Philip G. Berger ◽  
Charles G. Ham ◽  
Zachary R. Kaplan
Keyword(s):  
Earnings Forecasts ◽  
Share Price ◽  
Earnings Forecast ◽  
Forecast Dispersion ◽  
Earnings Announcement ◽  
Forecast Revisions ◽  
Predictable Returns

ABSTRACT Analysts are selective about which forecasts they update and, thus, convey information about current quarter earnings even when not revising the current quarter earnings (CQE) forecast. We find that (1) textual statements, (2) share price target revisions, and (3) future quarter earnings forecast revisions all predict error in the CQE forecast. We document several reasons analysts sometimes omit information from the CQE forecast: to facilitate beatable forecasts by suppressing positive news from the CQE forecast, to herd toward the consensus, and to avoid small forecast revisions. We also show that omitting information from CQE forecasts leads to lower forecast dispersion and predictable returns at the earnings announcement.

I/B/E/S Reported Actual EPS and Analysts' Inferred Actual EPS

2012 ◽  
Vol 88 (3) ◽  
pp. 853-880 ◽  
Author(s):  
Lawrence D. Brown ◽  
Stephannie Larocque
Keyword(s):  
Majority Rule ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Sample Period ◽  
Forecast Dispersion ◽  
Forecast Revisions ◽  
Earnings Surprises ◽  
Analyst Earnings

ABSTRACT Users of I/B/E/S data generally act as if I/B/E/S reported actual earnings represent the earnings analysts were forecasting when they issued their earnings estimates. For example, when assessing analyst forecast accuracy, users of I/B/E/S data compare analysts' forecasts of EPS with I/B/E/S reported actual EPS. I/B/E/S states that it calculates actuals using a “majority rule,” indicating that its actuals often do not represent the earnings that all individual analysts were forecasting. We introduce a method for measuring analyst inferred actuals, and we assess how often I/B/E/S actuals do not represent analyst inferred actuals. We find that I/B/E/S reported Q1 actual EPS differs from analyst inferred actual Q1 EPS by at least one penny 39 percent of the time during our sample period, 36.5 percent of the time when only one analyst follows the firm (hence, this consensus forecast is based on the “majority rule”), and 50 percent of the time during the last three years of our sample period. We document two adverse consequences of this phenomenon. First, studies failing to recognize that I/B/E/S EPS actuals often differ from analyst inferred actuals are likely to obtain less accurate analyst earnings forecasts, smaller analyst earnings forecast revisions conditional on earnings surprises, greater analyst forecast dispersion, and smaller market reaction to earnings surprises than do studies adjusting for these differences. Second, studies failing to recognize that I/B/E/S EPS actuals often differ from analyst inferred actuals may make erroneous inferences.

Discussion: “Dispersion in Analysts' Earnings Forecasts as a Measure of Uncertainty”

1998 ◽  
Vol 13 (3) ◽  
pp. 271-274 ◽  
Author(s):  
Lawrence D. Brown
Keyword(s):  
Stock Price ◽  
Annual Report ◽  
Earnings Forecasts ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Data Set ◽  
Forecast Dispersion ◽  
Forecast Revision ◽  
Analyst Earnings ◽  
The Impact

This paper tackles an interesting question; namely, whether dispersion in analysts' earnings forecasts reflects uncertainty about firms' future economic performance. It improves on the extant literature in three ways. First, it uses detailed analyst earnings forecast data to estimate analyst forecast dispersion and revision. The contrasting evidence of Morse, Stephan, and Stice (1991) and Brown and Han (1992), who respectively used consensus and detailed analyst data to examine the impact of earnings announcements on forecast dispersion, suggest that detailed data are preferable for determining the data set on which analysts' forecasts are conditioned. Second, it relates forecast dispersion to both analyst earnings forecast revision and stock price reaction to the subsequent earnings announcement. Previous studies related forecast dispersion to either analyst forecast revision (e.g., Stickel 1989) or to subsequent stock price movements (e.g., Daley et al. [1988]), but not to both revision and returns. Third, it includes the interim quarters along with the annual report. In contrast, previous research focused on the annual report, ignoring the interims (Daley et al. [1988]).

The Moderating Effect of Industry Concentration on the Relations Between External Attributes and the Properties of Analyst Earnings Forecast

2013 ◽  
Vol 16 (03) ◽  
pp. 1350019 ◽  
Author(s):  
Yu-Cheng Chen ◽  
Chiung-Yao Huang ◽  
Pei-I Chou
Keyword(s):  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Moderating Effect ◽  
Industry Concentration ◽  
Earnings Forecast ◽  
Moderating Effects ◽  
Forecast Dispersion ◽  
Earnings Surprise ◽  
Using Data ◽  
Analyst Earnings

Based on the work of earlier studies, the main objective of this study is to determine whether the properties of analyst earnings forecast are related to the interaction effects of external attributes and industry concentration that were not the focus of previous research. Specifically, this study examines the relations between external attributions and the properties of analyst earnings forecasts. Furthermore, we explore the moderating effect of industry concentration on the relations between external attributions and the properties of analyst earnings forecasts. Using data from Compustat and I/B/E/S, we provide evidence that analysts' earnings forecast accuracy is lower and the forecast dispersion is larger for firms with more earnings surprise. Firms with more analysts' forecasts covering are associated with higher forecast accuracy, but not necessarily higher forecast dispersion. The moderating effects of industry concentration on the relationships between earnings surprise, the number of estimates covering the company and forecast accuracy are particularly strong. In addition, the moderating effects of industry concentration on the relationship between earnings surprise, the number of estimates covering the company and the forecast dispersion are partially supported. Overall, the industrial concentration factor either magnifies or alleviates the effect of external attributions on analyst's forecast accuracy and forecast dispersion.

Do Supplementary Sales Forecasts Increase the Credibility of Financial Analysts’ Earnings Forecasts?

2010 ◽  
Vol 85 (6) ◽  
pp. 2047-2074 ◽  
Author(s):  
Edmund C. Keung
Keyword(s):  
Financial Analysts ◽  
Earnings Forecasts ◽  
Earnings Persistence ◽  
Earnings Forecast ◽  
Time Effects ◽  
Forecast Revisions ◽  
Sales Forecast ◽  
Sales Forecasts ◽  
Ex Post ◽  
Incremental Information

ABSTRACT: This study examines whether the market reacts more strongly to earnings forecast revisions when financial analysts supplement their earnings forecasts with sales forecasts. I find that earnings forecast revisions supplemented with sales forecast revisions have a greater impact on security prices than do stand-alone earnings forecast revisions, controlling for the incremental information content in sales forecasts. Supplemented earnings forecasts are more accurate ex post, controlling for other individual analyst characteristics. Results are robust to controlling for earnings persistence and time effects. Taken as a whole, financial analysts are more likely to supplement their earnings forecasts with sales forecasts when they have better information. Supplementary sales forecasts appear to lend credibility to earnings forecasts because financial analysts provide sales forecasts when they are more informed.

scholarly journals The intra-industry effects of chapter 11 filings: Evidence from analysts’ earnings forecast revisions

2012 ◽  
Vol 9 (4-2) ◽  
pp. 262-268
Author(s):  
Gary L. Caton ◽  
Jeffrey Donaldson ◽  
Jeremy Goh
Keyword(s):  
Cash Flow ◽  
Earnings Forecasts ◽  
Cash Flows ◽  
Bad News ◽  
Earnings Forecast ◽  
Market Reactions ◽  
Forecast Revisions ◽  
Stock Market Reactions ◽  
Future Cash Flows

Shareholders suffer huge losses when firms they own file Chapter 11. Interestingly, even shareholders of rival companies experience statistically significant losses. We examine how the bad news associated with a bankruptcy filing is transferred to the filing firm’s rivals. Using revisions in analysts’ earnings forecasts as a proxy for changes in expected future cash flows, we find that after a bankruptcy filing the market revises downward its cash flow expectations for rivals. Regression analysis confirms a positive relation between changes in expected cash flow and stock market reactions. These findings are consistent with our hypothesis that bad news associated with bankruptcy filings are transferred to rivals through reductions in expected future cash flows

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.

Audit Quality and Properties of Analyst Earnings Forecasts

2008 ◽  
Vol 83 (2) ◽  
pp. 327-349 ◽  
Author(s):  
Bruce K. Behn ◽  
Jong-Hag Choi ◽  
Tony Kang
Keyword(s):  
Financial Reporting ◽  
Audit Quality ◽  
Forecast Accuracy ◽  
Reporting Quality ◽  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Forecast Dispersion ◽  
Industry Specialization ◽  
Big 5 ◽  
Analyst Earnings

Under the assumption that audit quality relates positively to unobservable financial reporting quality, we investigate whether audit quality is associated with the predictability of accounting earnings by focusing on analyst earnings forecast properties. The evidence shows that analysts' earnings forecast accuracy is higher and the forecast dispersion is smaller for firms audited by a Big 5 auditor. We further find that auditor industry specialization is associated with higher forecast accuracy and less forecast dispersion in the non-Big 5 auditor sample but not in the Big 5 auditor sample. Overall, our results suggest that high-quality audit provided by Big 5 auditors and industry specialist non-Big 5 auditors is associated with better forecasting performance by analysts.

Market Reaction to Entry Timing of Corporate Capital Investment Announcement: Evidence from Announcement-Period Abnormal Returns and Analysts' Earnings Forecast Revisions

2010 ◽  
Vol 13 (04) ◽  
pp. 495-515 ◽  
Author(s):  
Sheng-Syan Chen ◽  
Xuan-Qi Su
Keyword(s):  
Capital Investment ◽  
Abnormal Returns ◽  
Earnings Forecasts ◽  
Share Price ◽  
Forecast Revisions ◽  
Announcement Effects ◽  
Corporate Capital ◽  
Advantages And Disadvantages ◽  
Entry Timing ◽  
First Mover

The main purpose of this study is to investigate the relative advantages and disadvantages of first-mover hypotheses by examining the role of entry timing in the announcement effects of corporate capital investment. Our empirical results suggest that those firms first announcing their capital investment will experience greater share-price effects than the followers in the same industry. In addition, the financial analysts tend to revise upward their announcement-period earnings forecasts for those capital investment announcers, suggesting that announcements of capital investment convey positive information about the earnings prospects of the announcing firms. Furthermore, analysts' revisions of earnings forecasts subsequent to such announcements are more favorable for leading-announcer firms than the followers. Overall, our findings provide fully support for the first-mover advantages hypothesis, indicating the importance of the entry timing when announcing a corporate capital investment.

Auditor Governance, Institutions and Analyst Forecast Properties: International Evidence

2013 ◽  
Vol 13 (1) ◽  
pp. 1-32 ◽  
Author(s):  
Arnt J. M. Verriest
Keyword(s):  
Audit Quality ◽  
Investor Protection ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Political Rights ◽  
Forecast Dispersion ◽  
Big 4 ◽  
Political Forces ◽  
Governance Institutions

ABSTRACT This paper investigates how political and legal institutions affect the governance role of auditors for a sample of firms originating in 42 countries. Prior studies focus on investor protection, but I focus on political rights as well. Specifically, I investigate how institutions and audit quality affect financial statement users' decision-making by considering properties of analysts' earnings forecasts. The evidence shows that forecast accuracy is lower and forecast dispersion higher for firms operating in countries with fewer political rights. Of particular interest is the finding that the association between Big 4 audits and earnings forecast properties is stronger in weak political environments. This finding suggests that auditors play an important—and up to now undocumented—governance role when political rights are low and political forces influential. My results also indicate that reporting reliability increases as investor protection becomes stronger. However, this result only holds for Big 4 clients, consistent with the notion that audits play a greater governance role in stronger legal environments.

scholarly journals Political Patronage, Audit Quality and the Properties of Analysts' Earnings Forecasts in Malaysia

2020 ◽  
Author(s):  
Willie E. Gist ◽  
Effiezal Aswadi Abdul Wahab
Keyword(s):  
Financial Reporting ◽  
Positive Relationship ◽  
Audit Quality ◽  
Negative Relationship ◽  
Forecast Accuracy ◽  
Reporting Quality ◽  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Forecast Dispersion ◽  
Political Patronage

Based on a sample of 2,034 Malaysian listed firm-year observations for the period 2007-2014, this study shows a negative relationship between dimensions of political patronage (i.e., politically connected firms and the percentage of Bumiputera directors) and analysts' earnings forecast accuracy. Furthermore, the study documents a positive relationship between Bumiputera directors and earnings forecast dispersion. These results suggest that the political patronage of firms is associated with low-quality earnings. We also find that measures of high audit quality are associated with high financial reporting quality and that this is evident in firms with high audit quality showing a weaker negative (positive) relationship between forecast accuracy (dispersion) and political connections and high levels of Bumiputera directors. Overall, the findings suggest that high audit quality plays an important role in mitigating agency costs of information asymmetry by improving the financial information environment.

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