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.

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.

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.

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 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.

The Influence of Corporate Governance Ratings on Buy-Side Analysts' Earnings Forecast Certainty: Evidence from the United States and the United Kingdom (Retracted)

2011 ◽  
Vol 23 (2) ◽  
pp. 1-25 ◽  
Author(s):  
Kwadwo N. Asare ◽  
Mohammad J. Abdolmohammadi ◽  
James E. Hunton
Keyword(s):  
United States ◽  
Corporate Governance ◽  
United Kingdom ◽  
Earnings Forecasts ◽  
The United States ◽  
Data Availability ◽  
Earnings Forecast ◽  
Seamless Integration ◽  
Average Rating ◽  
The United Kingdom

ABSTRACT The current study investigates how corporate governance ratings affect the certainty of buy-side analysts' earnings forecasts. Nineteen financial analysts from the United States (U.S.) and 17 from the United Kingdom (U.K.) participated in a 1 × 2 (corporate governance ratings: below or above industry average) within-participant experiment. We find that, on average, analysts exhibit more certainty in their range forecasts when the corporate governance rating is above average, relative to below average. We also observe a significant interaction between the corporate governance ratings and country, indicating that U.K. analysts exhibit stronger responses to a below average rating than U.S. analysts, while responses to an above average rating are not significantly different between the two countries. These results suggest a need to investigate cultural or other factors that can impede the seamless integration of national capital markets into a unified global financial network. Data Availability: Available upon request.

The Interactive Role of Difficulty and Incentives in Explaining the Annual Earnings Forecast Walkdown

2016 ◽  
Vol 91 (4) ◽  
pp. 995-1021 ◽  
Author(s):  
Mark T. Bradshaw ◽  
Lian Fen Lee ◽  
Kyle Peterson
Keyword(s):  
Interactive Effect ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Analyst Forecast ◽  
Earnings Forecast ◽  
Regression Analyses ◽  
Strategic Incentives ◽  
Psychology Literature ◽  
Annual Earnings

ABSTRACT The within-year walkdown of analysts' earnings forecasts has largely been attributed to analysts' incentives to curry favor with managers. We appeal to cognitive psychology literature on motivated reasoning and propose that forecasting difficulty interacts with such incentives to yield the observed walkdown. Higher forecasting difficulty generates a wider range of outcomes from which analysts can justify optimistically biased forecasts. In regression analyses, we find that the interaction between analysts' incentives for optimism and difficulty exhibits the strongest effect on earnings walkdowns. We also examine revenue forecasts as a benchmark of lower forecasting difficulty and find that revenue walkdowns are relatively diminutive. However, when analysts forecast losses, revenue forecasts are more critical and exhibit markedly steeper walkdowns. Our results suggest that analyst forecast walkdowns are better characterized by an interactive effect between analysts' strategic incentives for optimism and forecasting difficulty. JEL Classifications: G17; M41. Data Availability: Data are available from public sources identified in the text.

Do Stock Prices Influence Analysts' Earnings Forecasts?

2013 ◽  
Vol 26 (1) ◽  
pp. 85-108 ◽  
Author(s):  
Jeffrey S. Miller ◽  
Lisa M. Sedor
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Earnings Forecast ◽  
Future Earnings ◽  
Management Earnings Forecast ◽  
Stock Price Reaction ◽  
Made In

ABSTRACT This study uses an experiment with professional financial analysts to examine whether stock prices influence analysts' earnings forecasts. The findings indicate that analysts' revised forecasts made in response to a management earnings forecast differ depending on the level of uncertainty communicated by management's guidance and the stock price reaction to it. Lower (higher) stock price leads to lower (higher) analysts' forecasts when uncertainty about future earnings is high, but not when uncertainty about future earnings is low. Overall, the evidence suggests that the documented association between prior security returns and analysts' earnings forecasts is due, at least in part, to the influence of stock price on analysts' earnings forecasts. Data Availability: Contact the authors.

Stock Price Behavior Associated with Post-1974–75 LIFO Adoptions Announced at Alternative Disclosure Times

1996 ◽  
Vol 11 (4) ◽  
pp. 535-564 ◽  
Author(s):  
Morton Pincus ◽  
Charles E. Wasley
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Earnings Announcements ◽  
Market Response ◽  
Price Behavior ◽  
Positive Information ◽  
Earnings Announcement ◽  
Earnings Growth ◽  
Adoption Decision ◽  
Annual Earnings

We examine the behavior of stock prices at the time of post-1974–75 LIFO adoption announcements. We exploit recent theoretical and empirical developments in the LIFO adoption literature in an attempt to resolve some of the mixed findings in Hand (1993). We study LIFO adoptions announced prior to as well as at the time of annual earnings announcements. Previous research has mostly centered on 1974–75 adoptions made at the time of annual earnings announcements. Our study of LIFO adoptions announced prior to annual earnings announcement dates enables us to provide evidence on whether the early announcement of a LIFO adoption is used by firms to signal positive information about earnings growth. Collectively, our results suggest that in explaining the market response to LIFO adoption announcements, extant models of the LIFO adoption decision do not fully capture the richness of differing inflationary environments or of alternative disclosure times.

scholarly journals Measuring The Usefulness Of Information For Investors Inferences: The Case Of Quarterly Earnings Announcements

2010 ◽  
Vol 8 (7) ◽  
Author(s):  
C. Catherine Chiang ◽  
Yaw M. Mensah
Keyword(s):  
Financial Performance ◽  
Stock Price ◽  
Value Of Information ◽  
Earnings Announcements ◽  
New Method ◽  
Rates Of Return ◽  
Earnings Announcement ◽  
Quarterly Earnings ◽  
Other Information

In this paper, we propose a new method for assessing the usefulness of information, its inferential value. In the context of accounting and finance, we define the inferential value of information about a firm as how efficaciously the information enables investors to draw correct inferences regarding its future financial performance. On the basis of this definition, we develop a stylized model to measure the proximity of a firm’s future realized rates of return to the estimated rates of return implied by its current stock price. We then use the new measure to test the hypothesis that quarterly earnings announcements have a higher inferential value than other information arriving during interim (non-earnings announcement) periods. Our empirical findings suggest that investors are able to make more informative inferences about a firm’s future profitability based on quarterly earnings announcement than based on information available during interim periods. However, our findings also suggest that, in general, investors do not correctly anticipate future losses. Finally, we find that earnings announcements are as important in anticipating future profitability for larger firms as they are for smaller firms.

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