What Type of Reporting Consistency Does the Market Reward? Disaggregated Meet-or-Beat Streaks and Equity Prices

• In Event: Financial Accounting II

Abstract

Previous research shows that investors value EPS meet-or-beat streaks benchmarked to analysts’ forecasts. Due to the different persistence and reliability properties of firms’ revenue and expenses, in this study I test whether stock valuations are different when EPS streaks are extended by firms meeting their revenue versus expense forecast targets. I find that EPS meet-or-beat streaks that are primarily extended by firms meeting or beating analysts’ revenue forecasts are positively valued by the market but EPS streaks extended by meeting analysts’ implied-expense targets are negatively associated with firm valuations. My results also show that revenue and EPS meet-or-beat streaks are independently and positively associated with firm valuations but an extended expense meet-or-beat streak lowers firm equity valuations. Finally, I show that these relationships are stronger for firms that have higher expected earnings growth and report research and development expenses.

Author

• Thaddeus Andrew Neururer, University of Akron