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Review of Accounting Studies

Erschienen in:

01.06.2015

Anticipation of management forecasts and analysts’ private information search

verfasst von: Dora Altschuler, Gary Chen, Jie Zhou

Erschienen in: Review of Accounting Studies | Ausgabe 2/2015

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Abstract

We examine how analysts’ anticipation of a management forecast affects their search for private information. Analysts are likely to acquire more private information because of the potential gains from trading on that information before a publicly disclosed management forecast. However, this anticipation may also decrease analysts’ efforts, because the information in a management forecast could substitute for costly private information. We predict that higher costs (benefits) of private information acquisition are associated with decreased (increased) private information reflected in analysts’ forecasts when a management forecast is anticipated. Consistent with our predictions, we find that analysts acquire less private information before an anticipated forecast when earnings are more volatile and that they acquire more private information when the management forecast date is highly predictable and when the forecast is expected to be very accurate. We also find that star analysts acquire more private information before an anticipated forecast.

Vorheriger Artikel Political pressures and the evolution of disclosure regulation

Nächster Artikel Does concrete language in disclosures increase willingness to invest?

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To lend some credibility to this argument, we measure abnormal volume before an anticipated management forecast. We find that there is a volume “run-up” before the measurement date (untabulated). This run-up suggests that some investors seem to build up trading positions ahead of the forecast.

We do not use analysts’ forecasts from First Call, because this database does not identify individual analysts, and we make several predictions related to individual analyst characteristics. Results using analysts’ forecasts from First Call (excluding those pertaining to individual analyst characteristics) are consistent with those reported in the paper.

Before Reg FD, managers may have provided unobservable private earnings guidance to analysts. Therefore classifying firms as providing forecasts or not based on public earnings forecasts could result in misclassification of firms as not providing forecasts before Reg FD.

Half of the dates are randomly assigned as the day before the prior quarterly earnings announcement, one quarter is randomly assigned between 1 and 100 days before the prior quarterly earnings announcement, and the remaining quarters are randomly assigned between 100 and 225 days before the prior quarterly earnings announcement.

We include all management earnings forecasts when calculating ANTICIPATE. Confining our analysis to point forecasts results in coefficient estimates that are of the predicted direction but statistically insignificant. Nevertheless, an avenue for future work might be to examine how the history of the type of forecasts that managers disclose affects analysts’ information acquisition incentives.

The described classification of ANTICIPATE results in the following: 91 % of the firm-quarters with ANTICIPATE equal to one have management forecasts in the current quarter, while 15 % of the firm-quarters with ANTICIPATE equal to zero have management forecasts in the current quarter.

We considered alternative cutoff points to measure ANTICIPATE: (1) ANTICIPATE = one if management issued forecasts in at least seven of the past eight quarters or if management forecasts were issued in each of the six most recent quarters and zero if less than three management forecasts were issued in the past eight quarters. (2) ANTCIPATE = one if management issued forecasts in at least seven of the past eight quarters or if management forecast were issued in each of the six most recent quarters, and zero if no management forecasts were issued in the three most recent quarters. (3) ANTCIPATE = one if management issued forecasts in at least seven of the past eight quarters, if management forecast were issued in each of the six most recent quarters, or if management issued fourth quarter forecasts over the past two years. ANTCIPATE = zero if fewer than three management forecasts were issued in the past eight quarters or if no management forecasts were issued in the three most recent quarters. Our results are qualitatively similar using these alternative measures.

The motivation to drop all observations between the two ends of the spectrum arises from two considerations. First, the empirical tension between the two alternative stories could manifest most strongly for these two “extreme” groups. Hence comparing the two ends of the spectrum will likely increase the power of our tests. Second, including the middle group may exacerbate the endogeneity issue since the middle group is likely to differ fundamentally from the two other groups. Nevertheless, we test the middle group for comparison. Untabulated results show that, for the consensus measure, private information search is lowest for the middle group (mean = −0.019) compared to the mean for the two other groups. For the individual analyst measure, there is no significant difference of private information search when we compare the middle group to the other two groups.

Similar results are obtained by using a seasonal random walk with drift or the Foster (1977) model of time-series estimates.

Higher values of MFACCURACY correspond to lower past accuracy. Hence we take the bottom third of the distribution.

We expect that the effect for MFACCURACY and MFPREDICTABILITY would only manifest in the bottom group of observations when management forecasts are most accurate or most predictable. We did not have ex ante predictions of a linear relation for these variables (and hence did not use continuous measures). Our use of terciles as cutoff points is drawn from the work of Lys and Sabino (1992). They show that the power of a test is maximized when groups are formed into approximately equal terciles. Our results do not significantly change using cutoffs at one-fourth and one-fifth of the distribution. Using continuous measures, however, yields insignificant results, suggesting that the effects may not manifest in a linear manner.

We use ordinary least squares in our first-stage regressions. The use of a probit model in the first-stage does not substantially change our results.

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Titel: Anticipation of management forecasts and analysts’ private information search
verfasst von: Dora Altschuler
Gary Chen
Jie Zhou
Publikationsdatum: 01.06.2015
Verlag: Springer US
Erschienen in: Review of Accounting Studies / Ausgabe 2/2015
Print ISSN: 1380-6653
Elektronische ISSN: 1573-7136
DOI: https://doi.org/10.1007/s11142-014-9314-7

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