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The Effect Of Meeting Analyst Forecasts And Systematic Positive Forecast Errors On The Information Content Of Unexpected Earnings
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Book Synopsis The Effect of Meeting Analyst Forecasts and Systematic Positive Forecast Errors on the Information Content of Unexpected Earnings by : Thomas J. Lopez
Download or read book The Effect of Meeting Analyst Forecasts and Systematic Positive Forecast Errors on the Information Content of Unexpected Earnings written by Thomas J. Lopez and published by . This book was released on 2001 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper focuses on two distinct, but related, issues with respect to managers' incentives to report earnings that meet or exceed analysts' expectations. First, we assess the differential stock price sensitivity to earnings that meet or exceed analysts' expectations compared to those that do not. Second, we examine whether the market implicitly revises analysts' earnings forecasts for firms that systematically report earnings that exceed forecasts. We find that the earnings response coefficient (ERC) is significantly higher for firms that meet analysts' forecasts. Additionally, we find that the market recognizes and adjusts the forecast error of firms that exhibit a systematic pattern of reporting positive or negative unexpected earnings. The market fully adjusts for the systematic component of the forecast error when it is negative; however, only a partial adjustment is made when the systematic component is positive. Overall, our evidence suggests that managers who try to report earnings that meet analysts' forecasts are responding to two market incentives. First, the market provides a premium to positive forecast errors and assigns a higher multiple to the level of positive unexpected earnings. Second, though the market recognizes systematic bias in analysts' forecasts, it does not fully adjust for systematically positive forecast errors. Our evidence provides, at a minimum, a partial explanation for managers' fixation on reporting positive unexpected earnings.
Author :Gordon Douglas Richardson Publisher :Ann Arbor, Mich. : University Microfilms International ISBN 13 : Total Pages :350 pages Book Rating :4.E/5 ( download)
Book Synopsis A Theoretical and Empirical Investigation of the Information Content of Annual Earnings Announcements by : Gordon Douglas Richardson
Download or read book A Theoretical and Empirical Investigation of the Information Content of Annual Earnings Announcements written by Gordon Douglas Richardson and published by Ann Arbor, Mich. : University Microfilms International. This book was released on 1983 with total page 350 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Financial Analysts and Information Processing on Financial Markets by : Jan-Philipp Matthewes
Download or read book Financial Analysts and Information Processing on Financial Markets written by Jan-Philipp Matthewes and published by BoD – Books on Demand. This book was released on 2015-01-28 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial analysts play an ambivalent role on financial markets: On the one hand investors and the media frequently follow their advice, on the other hand they are regularly discredited when their forecasts or recommendations prove to be erroneous. This cumulative thesis explores the informational content of financial analysts’ forecasts for investors by addressing three specific topics: Consensus size as a rudimentary investment signal, the association of analysts’ target prices with business sentiment, and the consistency of analysts’ different investment signals in the context of the 2008 financial crisis. Overall, the thesis provides additional evidence that investors can profit from analysts’ forecasts and recommendations. However, it is also shown that investors need to be very selective about which signal to rely on and in which context to use these because analysts’ investment signals can also be heavily biased and erroneous. About the author: Jan-Philipp Matthewes studied ‘Economics’ at the University of Cologne, Germany, and holds a Dean’s Award from the Faculty of Economics and Social Sciences. His research focus on financial analysts evolved while working in equity research at a leading German bank. The PhD-thesis was supervised by Prof. Dr. Martin Wallmeier, Finance and Accounting, at the University of Fribourg, Switzerland. Since 2013 Jan-Philipp Matthewes is the managing director of the boutique private equity firm ‘Matthewes Capital Invest GmbH’.
Book Synopsis Conflicts of Interest by : Luc Thévenoz
Download or read book Conflicts of Interest written by Luc Thévenoz and published by Kluwer Law International B.V.. This book was released on 2007-01-01 with total page 422 pages. Available in PDF, EPUB and Kindle. Book excerpt: Conflicts of interest arise naturally in all walks of life, particularly in business life. As general and indeed inevitable phenomena, conflicts of interest should not be prohibited but properly managed. This book presents indepth analysis of such management in three areas of corporate governance where the conflict-of-interest problems are particularly acute: executive compensation, financial analysis, and asset management. ""Conflicts of Interest"" presents the results of a two-year-long research project bringing together academics and practitioners in both law and finance from Europe and the.
Book Synopsis Management's Incentives to Guide Analysts' Forecasts by : Dawn A. Matsumoto
Download or read book Management's Incentives to Guide Analysts' Forecasts written by Dawn A. Matsumoto and published by . This book was released on 1999 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent reports in the popular press allege that managers guide analysts' forecasts downward to improve their chances of meeting or beating these forecasts when earnings are announced. Since the majority of this alleged guidance is unobservable, I use systematic patterns in analysts' forecast errors as a proxy for firm-provided guidance and examine both the change in guidance over time as well as the characteristics of firms exhibiting evidence of this guidance. The evidence is consistent with an increase in firm-provided guidance in recent years and differences across firms in the propensity to guide forecasts downward. In particular, I find: 1) an increasing number of forecast errors exactly equal to zero particularly for firms with initially high forecasts; 2) when firms miss analysts' expectations at the earnings announcement, the proportion that miss quot;highquot; (positive earnings surprise) versus miss quot;lowquot; (negative earnings surprise) has increased in recent years particularly for firms with initially high forecasts; 3) firms with higher growth prospects, higher institutional ownership, and higher litigation risk are more likely to guide analysts' forecasts downward to ensure reported earnings meet expectations at the earnings announcement, while firms with low value relevance of earnings are less likely to do so; and 4) firms with high institutional ownership and reliance on implicit claims with their stakeholders tend to exceed rather than fall short of expectations at the earnings announcement.
Book Synopsis Comparing the Quality of Alternative Summary Performance Measures in the Real Estate Investment Trust (REIT) Industry by : Desmond Tsang
Download or read book Comparing the Quality of Alternative Summary Performance Measures in the Real Estate Investment Trust (REIT) Industry written by Desmond Tsang and published by . This book was released on 2006 with total page 214 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Misstated Quarterly Earnings, Alternative Information, and Financial Analyst Earnings Forecast Revisions by : Michael L. Ettredge
Download or read book Misstated Quarterly Earnings, Alternative Information, and Financial Analyst Earnings Forecast Revisions written by Michael L. Ettredge and published by . This book was released on 1993 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Analyst Information Precision and Small Earnings Surprises by : Sanjay Bissessur
Download or read book Analyst Information Precision and Small Earnings Surprises written by Sanjay Bissessur and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty and present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as “suspect” of managing earnings.
Book Synopsis The Effect of Meeting or Beating Revenue Forecasts on the Association between Quarterly Returns and Earnings Forecast Errors by : Lynn L. Rees
Download or read book The Effect of Meeting or Beating Revenue Forecasts on the Association between Quarterly Returns and Earnings Forecast Errors written by Lynn L. Rees and published by . This book was released on 2005 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent studies in the accounting literature provide evidence of a market premium whenever firms meet or exceed analysts' earnings forecasts. Financial analysts typically issue revenue forecasts in addition to earnings forecasts. In this study, we draw our motivation from the cue consistency theory to examine whether meeting or exceeding revenue forecasts serves as an additional cue to the market in pricing earnings performance. Consistent with this theory, we show that the market premium (penalty) to meeting or beating (not meeting) earnings forecasts is accentuated when revenue forecasts are also met (not met). Meeting earnings forecasts but not meeting revenue forecasts generally results in a significantly negative market penalty, and the magnitude of the earnings response coefficient jointly depends on whether the earnings and revenue forecasts are met or not. Finally, consistent with previous research, we document a significant association between revenue forecast errors and quarterly abnormal returns. However, we show that after allowing for differential market reactions depending on whether earnings and revenue forecasts are met, this association becomes insignificant. This result suggests that the value of meeting revenue forecasts is arguably of greater importance to market participants than the magnitude of the revenue forecast error.
Book Synopsis Analysts' Incentives and Systematic Forecast Bias by : Senyo Y. Tse
Download or read book Analysts' Incentives and Systematic Forecast Bias written by Senyo Y. Tse and published by . This book was released on 2008 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The likelihood that earnings announcements meet or beat analyst expectations differs substantially and systematically across firms. Prior research explores managers incentives to meet analyst expectations. In this paper, we examine analysts incentives to issue systematically biased earnings forecasts and thereby influence the likelihood that firms report good earnings news. We first document that forecast biases are systematically different, as large firms and firms with low forecast dispersion - labeled high-information firms - are more likely to report positive earning surprises, while small firms and firms with large forecast dispersion - labeled low-information firms - tend to have optimistically biased forecasts that often lead to negative earnings surprises. We also show that potential financing needs induce more optimistic forecasts for low-information firms, but this effect is greatly mitigated for high-information firms. We find that career concerns help explain analysts' systematic forecast bias. An analyst's career longevity is enhanced by issuing pessimistic forecasts for high-information firms and optimistic forecasts for low-information firms. Optimistic forecast bias for high-financing-need firms has no consequence for an analyst's career longevity, but optimistic bias for low-financing-need firms hurts. Our results suggest that career concerns contribute to a systematic pattern of forecasting that aligns with managerial preferences.
Book Synopsis Analysts' Response to Earnings Management by : Xiaohui Liu
Download or read book Analysts' Response to Earnings Management written by Xiaohui Liu and published by . This book was released on 2004 with total page 91 pages. Available in PDF, EPUB and Kindle. Book excerpt: Previous literature studies analysts' earnings forecasts without considering firms' response to analysts' forecasts. This study improves upon previous research by considering firms' earnings management with respect to analysts' forecasts. I hypothesize that analysts understand these earnings management practices, and incorporate firms' expected behavior into their forecasts. I demonstrate that for firms with high tendencies and flexibilities to manage earnings downwards, and/or firms with negatively skewed earnings, analysts account for earnings management practices by lowering the otherwise optimal forecasts. Comparing analysts' consensus forecasts with proxy for non-strategic forecasts (otherwise optimal forecasts), I find that analysts' forecasts are systematically below the non-strategic forecasts for firm-quarters that have: high accounting reserves available to manage earnings downwards, high unmanaged earnings, low debt to equity ratios, negative forecasted earnings, and negatively skewed unmanaged earnings. These results suggest that analysts forecast below the non-strategic level in order to avoid the large optimistic forecast errors that occur when firms who cannot meet forecasts manage earnings downward. The test results also suggest that analysts forecast above the non-strategic forecasts when earnings are positively skewed, and/or when firms have high tendencies and flexibilities to manage earnings upwards.
Book Synopsis Analysts' Forecasts as Earnings Expectations (Classic Reprint) by : Patricia C. O'Brien
Download or read book Analysts' Forecasts as Earnings Expectations (Classic Reprint) written by Patricia C. O'Brien and published by Forgotten Books. This book was released on 2018-03-07 with total page 134 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from Analysts' Forecasts as Earnings Expectations A third contribution of this paper is a methodological refinement of the techniques used to evaluate forecastsp I demonstrate the existence of significant time-period - specific effects in forecast errors. If time series and cross-section data are pooled without taking these effects into account, the statistical results may be overstated, and the results are subject to an aggregation bias. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.
Book Synopsis Determinants of Earnings Forecast Error, Earnings Forecast Revision and Earnings Forecast Accuracy by : Sebastian Gell
Download or read book Determinants of Earnings Forecast Error, Earnings Forecast Revision and Earnings Forecast Accuracy written by Sebastian Gell and published by Springer Science & Business Media. This book was released on 2012-03-26 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earnings forecasts are ubiquitous in today’s financial markets. They are essential indicators of future firm performance and a starting point for firm valuation. Extremely inaccurate and overoptimistic forecasts during the most recent financial crisis have raised serious doubts regarding the reliability of such forecasts. This thesis therefore investigates new determinants of forecast errors and accuracy. In addition, new determinants of forecast revisions are examined. More specifically, the thesis answers the following questions: 1) How do analyst incentives lead to forecast errors? 2) How do changes in analyst incentives lead to forecast revisions?, and 3) What factors drive differences in forecast accuracy?
Book Synopsis Inefficiency in Earnings Forecasts by : Douglas E. Stevens
Download or read book Inefficiency in Earnings Forecasts written by Douglas E. Stevens and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior archival studies of analysts' forecasts have found evidence for systematic underreaction, systematic overreaction, and systematic optimism bias. Easterwood and Nutt (1999) attempt to reconcile the conflicting evidence by testing the robustness of Abarbanell and Bernard's (1992) underreaction results to the nature of the information. Consistent with systematic optimism, forecasts are found to underreact to negative earnings information but overreact to positive information. However, Easterwood and Nutt are unable to distinguish between misreaction caused by incentives unique to analysts with misreaction caused by human decision bias that may be typical of investors. We address this issue by analyzing forecast reactions to positive versus negative information in the controlled experimental setting of Gillette, Stevens, Watts, and Williams (1999). This experimental setting has the potential to detect human decision bias because it is void of potentially confounding incentives of analysts, contains a simple forecasting objective (a random-walk series), and provides learning opportunities and economic incentives to minimize forecast error. We find a systematic forecast underreaction to both positive and negative information, and the underreaction is generally greater for positive information than negative information. These results suggest that prior empirical evidence of forecast overreaction to positive information is unlikely to be attributable to human decision bias.
Book Synopsis Information content of analysts' composite forecast revisions by : Eugene A. Imhoff, Jr. and Gerald J. Lobo
Download or read book Information content of analysts' composite forecast revisions written by Eugene A. Imhoff, Jr. and Gerald J. Lobo and published by . This book was released on 1983 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Advances in Behavioral Finance by : Richard H. Thaler
Download or read book Advances in Behavioral Finance written by Richard H. Thaler and published by Russell Sage Foundation. This book was released on 1993-08-19 with total page 628 pages. Available in PDF, EPUB and Kindle. Book excerpt: Modern financial markets offer the real world's best approximation to the idealized price auction market envisioned in economic theory. Nevertheless, as the increasingly exquisite and detailed financial data demonstrate, financial markets often fail to behave as they should if trading were truly dominated by the fully rational investors that populate financial theories. These markets anomalies have spawned a new approach to finance, one which as editor Richard Thaler puts it, "entertains the possibility that some agents in the economy behave less than fully rationally some of the time." Advances in Behavioral Finance collects together twenty-one recent articles that illustrate the power of this approach. These papers demonstrate how specific departures from fully rational decision making by individual market agents can provide explanations of otherwise puzzling market phenomena. To take several examples, Werner De Bondt and Thaler find an explanation for superior price performance of firms with poor recent earnings histories in the tendencies of investors to overreact to recent information. Richard Roll traces the negative effects of corporate takeovers on the stock prices of the acquiring firms to the overconfidence of managers, who fail to recognize the contributions of chance to their past successes. Andrei Shleifer and Robert Vishny show how the difficulty of establishing a reliable reputation for correctly assessing the value of long term capital projects can lead investment analysis, and hence corporate managers, to focus myopically on short term returns. As a testing ground for assessing the empirical accuracy of behavioral theories, the successful studies in this landmark collection reach beyond the world of finance to suggest, very powerfully, the importance of pursuing behavioral approaches to other areas of economic life. Advances in Behavioral Finance is a solid beachhead for behavioral work in the financial arena and a clear promise of wider application for behavioral economics in the future.
Book Synopsis Investors' Differential Reaction to Positive Versus Negative Earnings Surprises by : Arianna S. Pinello
Download or read book Investors' Differential Reaction to Positive Versus Negative Earnings Surprises written by Arianna S. Pinello and published by . This book was released on 2007 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Archival studies document an asymmetrically strong market reaction to positive vis-agrave;-vis negative earnings surprises. This finding appears inconsistent with the well-known effect of loss aversion and remains unexplained. I contend that this reaction pattern can arise when investors' earnings expectations do not coincide with analyst forecasts. Numerous studies document optimistic biases in analyst forecasts. If investors perceive optimistic biases in analyst forecasts, their earnings expectations will be lower than analyst forecasts. Because the contrast between the obtained and the expected outcome determines the degree of perceived surprise, an investor expectation which is below the analyst forecast results in a larger (smaller) perceived earnings surprise than reported when the surprise is positive (negative). Investors' lower expectations relative to analyst forecasts therefore result in a stronger reaction to positive than to negative reported earnings surprises of equivalent magnitude. In a controlled experiment, I replicate the asymmetrically strong reaction to positive reported earnings surprises, and trace this reaction pattern to investors' perceptions of these surprises. I further show that when earnings surprises are measured based on investors' perception of those surprises, the differential reaction pattern reverses: investors react asymmetrically strong to negative vis-agrave;-vis positive perceived earnings surprises, consistent with loss aversion. My findings carry implications for investors and accounting researchers.
