Does other information improve the usefulness of management earnings forecasts for analysts?

Abstract

Purpose

The purpose of this paper is to investigate whether other information included with management earnings forecasts can help analysts to formulate better earnings predictions.

Design/methodology/approach

This study uses ordinary least squares regression analysis of 373 management earnings forecasts and compares changes in analyst forecast characteristics surrounding the release of a management forecast of earnings from the same firms which sometimes include other information with their forecasts and sometimes do not.

Findings

Analysts make larger forecast revisions when other information is included with a surprising management earnings forecast, especially if the forecast contains good news. This information reduces subsequent analyst forecast error for firms with negative earnings.

Research limitations/implications

Results of this study may not extend to smaller firms or to firms that have disclosure policies of always including other information with their forecasts.

Originality/value

Prior research has yielded mixed results on whether other information included with management forecasts of earnings is useful to the market directly by examining stock market reactions to forecast announcements. This study reveals that this information may be useful to the market through the filter of financial analysts since they are able to use the other information in management forecasts to improve their own predictions.

Citation

Blouin, M.C. (2012), "Does other information improve the usefulness of management earnings forecasts for analysts?", Review of Accounting and Finance, Vol. 11 No. 1, pp. 93-112. https://doi.org/10.1108/14757701211201849