Analysts’ Reactions to Managers’ Earnings Guidance between Equity Offerings Dates

• In Event: Financial Accounting and Reporting 8

Abstract

We hypothesize and find that that the extent to which analysts respond to management’s guidance is strongest around an SEO, and the distance between analysts’ forecasts and management’s guidance expands one year after the SEO issuance. We find that manager’s previously aggressive guidance significantly determines how closely analysts agree with management’s current guidance in generating their post-guidance forecasts. Such a reactionary pattern is present not only in scenarios where underwriting incentives are high (SEO) but also in scenarios between SEOs where trading incentives alone are present. We further discover that despite the fact that both buy and sell recommendations stimulate trades, only buy recommendations along with a deviating analyst forecast in combination are significantly associated with increased trading volume.

Authors

• Sharon Hua, La Salle University

• Edward Werner, Rutgers University