An Empirical Analysis of “Superior” Management Earnings Forecast.

• In Event: Breakfast and Research & Education Table Forum
  In Roundtable Session: Table 6: Corporate Governance & Management Forecasts

Abstract

This paper examines whether capital markets reward the controversial practice of issuing short-term management earnings forecasts. Using a sample of quarterly earnings forecasts issued over 2001-2009, we find that firms may temporarily reduce stock price volatility by providing quarterly earnings forecasts. Further, our analysis shows that not all guidance issuers are equally rewarded by capital markets. The benefits of reduced stock price volatility and favorable market valuation primarily accrue to firms with a track record of supplying accurate and timely short-term earnings forecasts. Our findings suggest that superior short-term earnings guidance, which fosters transparent financial information environments and reduces investor information uncertainty, is indeed rewarded by capital markets.

Author

• Tina Wang, Univiersity of Houston - Downtown