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

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 tha...

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Bibliographic Details
Published in:The Accounting review 2010-11, Vol.85 (6), p.2047-2074
Main Author: Keung, Edmund C.
Format: Article
Language:English
Subjects:
Analytical forecasting
Business structures
Credibility
Earnings
Earnings forecasting
Financial advisers
Financial analysis
Financial control
Financial management
Forecasts
Investment analysis
Investors
Organizational effectiveness
P values
Revisions
Sales forecasting
Sales management
Sales reporting
Securities prices
Stock prices
Stock sales
Studies
U.S.A
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Summary: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.
ISSN:0001-4826
1558-7967
DOI:10.2308/accr.2010.85.6.2047