Properties Of Management Forecast And Analysts' Responsiveness

Abstract

This paper examines the degree of analysts’ responsiveness to voluntary management guidance. Prior studies report that the management guidance is informative and influential (e.g. Baginski et al., 1993). This paper studies various factors that trigger equity market reactions around the management forecast issuance date and find that analysts are more reactive to new information contained in management guidance when the guidance conveys information that affects the stock market. The extent of the analysts’ reaction to management guidance increases when the analysts find that the guidance is more credible. Credibility of management guidance from the standpoint of analysts means ex-post accuracy of the earnings estimate by the management. The direction and the magnitude of earnings forecast revisions are influenced by the assessment of the credibility of management earnings forecast by financial analysts.