Impact of Adoption of Long-Term Performance Plans on Financial Analysts' Long-Term Forecasts

Impact of Adoption of Long-Term Performance Plans on Financial Analysts' Long-Term Forecasts Prior research demonstrates that firms adopting long-term performance plans experience increased capital investment, earnings, and risk in the post-adoption period. However, these results are subject to distortions that may result from exogenous factors over the long time period examined. To avoid these potential distortions we examine financial analysts' forecasts in the periods immediately preceding and following the adoption of the performance plan. We find that projected long-term capital expenditures per share, earnings per share and cash flow per share are revised upward in the post-adoption period. These results are consistent with the premise that the adoption of long-term performance plans is expected to favorably affect managers' decisions. In addition, we find that the revisions are primarily attributable to firms that were performing poorly in the period prior to plan adoption and in greatest need of change. This finding has not been documented in previous studies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Impact of Adoption of Long-Term Performance Plans on Financial Analysts' Long-Term Forecasts

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2002 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1020771625686
Publisher site
See Article on Publisher Site

Abstract

Prior research demonstrates that firms adopting long-term performance plans experience increased capital investment, earnings, and risk in the post-adoption period. However, these results are subject to distortions that may result from exogenous factors over the long time period examined. To avoid these potential distortions we examine financial analysts' forecasts in the periods immediately preceding and following the adoption of the performance plan. We find that projected long-term capital expenditures per share, earnings per share and cash flow per share are revised upward in the post-adoption period. These results are consistent with the premise that the adoption of long-term performance plans is expected to favorably affect managers' decisions. In addition, we find that the revisions are primarily attributable to firms that were performing poorly in the period prior to plan adoption and in greatest need of change. This finding has not been documented in previous studies.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 13, 2004

References

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