The Impact of Corporate Downsizing on Analysts' Earnings Forecasts

2020 ◽  
Vol 2020 (1) ◽  
pp. 16838
Author(s):  
Ann-Christine Schulz ◽  
Margarethe F Wiersema
Keyword(s):  
Earnings Forecasts ◽  
Corporate Downsizing ◽  
The Impact

scholarly journals The impact of litigation risk on corporate prospective disclosure: A review of the empirical literature

2012 ◽  
Vol 10 (1) ◽  
pp. 53-61 ◽  
Author(s):  
Gerry Gallery ◽  
Jodie Nelson ◽  
Chan Guo
Keyword(s):  
Earnings Forecasts ◽  
Empirical Literature ◽  
Future Research ◽  
Litigation Risk ◽  
Management Earnings Forecasts ◽  
Differential Impact ◽  
Disclosure Decisions ◽  
Secondary Factor ◽  
External Governance ◽  
The Impact

We review the literature on the impact of litigation risk (a form of external governance) on corporate prospective disclosure decisions as reflected in management earnings forecasts. From this analysis we identify four key areas for future research. First, litigation risk warrants more attention from researchers; currently it tends to be treated as a secondary factor impacting MEF decisions. Second, it would be informative from a governance perspective for researchers to explore why litigation risk has a differential impact on MEF decisions across countries. Third, understanding the interaction between litigation risk and forecast/firm-specific characteristics is important from management, investor and regulatory perspectives but is currently under-explored Last, research on the litigation risk and MEF attributes link is piecemeal and incomplete, requiring more integrated and expanded analysis.

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]).

CEO career concerns and expectations management

2019 ◽  
Vol 20 (3) ◽  
pp. 267-289
Author(s):  
Elio Alfonso ◽  
Li-Zheng Brooks ◽  
Andrey Simonov ◽  
Joseph H. Zhang
Keyword(s):  
Earnings Forecasts ◽  
Early Career ◽  
Career Concerns ◽  
Career Stages ◽  
Career Stage ◽  
Content Type ◽  
Expectations Management ◽  
Reputational Capital ◽  
The Impact ◽  
Practical Implications

Purpose The purpose of this paper is to examine the impact of career concerns on CEOs’ use of expectations management to meet or beat analysts’ quarterly earnings forecasts. The authors posit that early career-stage CEOs are less (more) likely to use expectations management than are late career-stage CEOs if the market views expectations management as an opportunistic strategy (efficient process) due to reputational capital concerns. Design/methodology/approach The authors obtain data for CEO career stages and CEO compensation from ExecuComp, analyst earnings forecasts from the detailed I/B/E/S database, financial statement data from quarterly Compustat and stock returns from the daily CRSP database over the period 1992–2013. Findings The results are consistent with the opportunistic hypothesis and early-stage CEOs seeking to build reputational capital by avoiding the perception of engaging in an inefficient managerial strategy. The authors find robust evidence that late career-stage CEOs are more likely to engage in expectations management than early career-stage CEOs. Furthermore, the authors show that late career-stage CEOs tend to employ expectations management to boost the value of their equity-based compensation. Research limitations/implications The findings have important implications because the authors document a different implication of the “horizon problem” related to CEOs’ opportunistic forecasting behavior and the manipulation of analysts’ forecasts for CEOs who are approaching retirement. Practical implications The results have practical implications for analysts who provide earnings forecasts for firms whose CEOs are in early or late career stages and for investors who use such analysts’ forecasts in firm valuation models. Originality/value The authors contribute to the literature on expectations management by documenting how reputational incentives of CEOs affect the likelihood that managers engage in expectations management. The authors show that an important managerial incentive to engage in expectations management is CEO career concerns. Furthermore, the authors show that CEOs who are in early stages of their careers choose not to engage in expectations management due to the market’s perceived degree of opportunism pertaining to this strategy.

The Impact of Financial Covenants in Private Loan Contracts on Classification Shifting

2019 ◽  
Vol 65 (8) ◽  
pp. 3637-3653 ◽  
Author(s):  
Yun Fan ◽  
Wayne B. Thomas ◽  
Xiaoou Yu
Keyword(s):  
Earnings Forecasts ◽  
Management Technique ◽  
Loan Contracts ◽  
Special Items ◽  
Classification Shifting ◽  
Distressed Firms ◽  
Debt Covenant ◽  
The Impact ◽  
Covenant Violations ◽  
Private Loan

This study examines whether firms with private loan contracts that contain debt covenants based on earnings before interest, taxes, depreciation, and amortization (EBITDA) are more likely to misclassify core expenses as special items (i.e., classification shift). Misclassifying core expenses as income-decreasing special items allows the firm to increase EBITDA and thereby potentially avoid debt covenant violations. Consistent with our expectation, firms misclassify core expenses as special items when at least one EBITDA-related financial covenant is close to being violated. In addition, classification shifting is more prominent when financially distressed firms are close to violating at least one EBITDA-related covenant. Whereas prior research on classification shifting focuses primarily on equity market incentives (e.g., meeting analysts’ earnings forecasts), our study extends this research to private loan contracts to highlight that creditors also affect classification shifting. Classification shifting appears to be an additional earnings management technique used by managers to avoid debt covenant violations. This paper was accepted by Shivaram Rajgopal, accounting.

The impact of strategic deviance on analysts’ earnings forecasts: evidence from China

2019 ◽  
Vol 10 (3) ◽  
pp. 362-381
Author(s):  
Xiqiong He ◽  
Changping Yin
Keyword(s):  
Information Asymmetry ◽  
Corporate Strategy ◽  
Forecast Error ◽  
Environmental Uncertainty ◽  
Earnings Forecasts ◽  
Financial Information ◽  
Strategic Information ◽  
Content Type ◽  
Information Transparency ◽  
The Impact

Purpose The purpose of this paper is to explore the effect of firm’s deviant strategy on analysts’ earnings forecasts and further examine the effects of firm’s information transparency and environmental uncertainty on these relationships from information asymmetry perspective. Design/methodology/approach The sample includes listed firms on Shanghai and Shenzhen Stock Exchange during the period 2007-2013. Findings The results indicate that firms’ deviant strategies have effects on analysts’ earnings forecasts, in particular, firms with extreme strategies have less analysts following, larger forecast error and dispersion compared with firms following industry norms. Moreover, information transparency and environmental uncertainty have effects on the relationship between strategic deviance and analysts’ earnings forecasts. Practical implications The empirical results of this paper provide strong evidence that strategy information is an important source of information for analysts’ earnings forecasts, which shows that analysts should pay attention to not only financial information but also the strategic information, especially when the information is related to strategic choice. In addition, it is necessary for investors to focus on strategic information to have a better understanding on financial information of enterprises and make better investment decisions. Originality/value The findings of this study indicate that corporate strategic deviance has an effect on analysts’ earnings forecasting behavior. This study enriches research studies on corporate strategy and external stakeholders and complements related research on analysts’ earnings forecasts from strategic perspective and information asymmetry perspective.

Restatement Disclosures and Management Earnings Forecasts

2013 ◽  
Vol 27 (2) ◽  
pp. 347-369 ◽  
Author(s):  
Michael Ettredge ◽  
Ying Huang ◽  
Weining Zhang
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Quarterly Earnings ◽  
Financial Restatements ◽  
The Impact ◽  
Information Providers

SYNOPSIS We examine the impact of financial restatements on managers' subsequent earnings forecasts. We argue that restatements create conflicting incentives. One incentive is to repair manager reputations as information providers by providing more and better guidance via earnings forecasts. The opposing incentive is to avoid risk by reducing the information in forecasts. We find that compared to control firms, restatement companies exhibit a decreased propensity to issue quarterly earnings forecasts following restatements. Those that do make forecasts issue fewer forecasts in post-restatement periods. We also find that post-restatement forecasts are less precise, and are less optimistically biased. Overall, our results suggest that, rather than increasing voluntary disclosure in the form of forecasts, managers of restatement companies exhibit risk-averting forecasting behavior following restatements.

scholarly journals The Impact Of Social Capital On The Propensity And Properties Of Management Earnings Forecasts

2014 ◽  
Vol 30 (6) ◽  
pp. 1803
Author(s):  
Xinyi Lu
Keyword(s):  
United States ◽  
Social Capital ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
The United States ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Financial Factor ◽  
The Impact ◽  
The Relationship

This paper examines the relationship between the regional variation in social capital in the United States and the propensity and properties of the management earnings forecasts. Social capital refers to connections among individualssocial networks and the norms of reciprocity and trustworthiness that arise from them (Putnam 2000). Using a comprehensive sample of companies in the United States, we find that firms located in region with higher social capital are more likely to issue a management earnings forecast and are inclined to forecast more frequently. In addition, earnings forecasts made by those firms tend to be more specific. Our findings suggest that mangers of firms in the high social capital regions are more likely to be concerned about their reputation of providing transparent information regarding their businesses because of the close connections among individuals and the greater propensities to honor obligations. This study contributes to the accounting literature by identifying a non-financial factor (i.e., social capital) that affects managements voluntary disclosure practices.

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