Analysts’ Reactions to Earnings Preannouncement Strategies

Analysts’ Reactions to Earnings Preannouncement Strategies Preannouncements of earnings tend to overstate negative or understate positive news, which decreases the chance of a negative surprise when actual earnings is announced. We conduct an experiment to investigate how experienced sell‐side analysts’ earnings forecasts are affected by preannouncements that either understate, accurately state, or overstate the magnitude of positive or negative total earnings news, holding total earnings news constant. We find that firms with negative (positive) total news receive the highest post‐earnings announcement forecasts of future earnings when the earlier preannouncement overstates (understates) the magnitude of the news. These forecasts are consistent with the analysts’ perceptions about the firms’ future prospects, but not their perceptions of management. While analysts expect preannouncements to be lower than actual earnings, they do not adjust their forecasts for these beliefs. These insights into analysts’ responses have implications both for managers and analysts. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting Research Wiley

Analysts’ Reactions to Earnings Preannouncement Strategies

Loading next page...
 
/lp/wiley/analysts-reactions-to-earnings-preannouncement-strategies-S4HKEgqTr5
Publisher
Wiley
Copyright
University of Chicago on behalf of the Institute of Professional Accounting, 2002
ISSN
0021-8456
eISSN
1475-679X
DOI
10.1111/1475-679X.00045
Publisher site
See Article on Publisher Site

Abstract

Preannouncements of earnings tend to overstate negative or understate positive news, which decreases the chance of a negative surprise when actual earnings is announced. We conduct an experiment to investigate how experienced sell‐side analysts’ earnings forecasts are affected by preannouncements that either understate, accurately state, or overstate the magnitude of positive or negative total earnings news, holding total earnings news constant. We find that firms with negative (positive) total news receive the highest post‐earnings announcement forecasts of future earnings when the earlier preannouncement overstates (understates) the magnitude of the news. These forecasts are consistent with the analysts’ perceptions about the firms’ future prospects, but not their perceptions of management. While analysts expect preannouncements to be lower than actual earnings, they do not adjust their forecasts for these beliefs. These insights into analysts’ responses have implications both for managers and analysts.

Journal

Journal of Accounting ResearchWiley

Published: Mar 1, 2002

There are no references for this article.

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create folders to
organize your research

Export folders, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off