Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance

Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether management earnings per share forecasts and their characteristics influence the future earnings response c...

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Main Authors: Choi, Jong-Hag, Myers, Linda, Ziebart, David, ZANG, Yoonseok
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Language:English
Published: Institutional Knowledge at Singapore Management University 2008
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Online Access:https://ink.library.smu.edu.sg/soa_research/95
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spelling sg-smu-ink.soa_research-10942010-09-22T09:12:05Z Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance Choi, Jong-Hag Myers, Linda Ziebart, David ZANG, Yoonseok Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether management earnings per share forecasts and their characteristics influence the future earnings response coefficient (FERC). We find that FERCs are greater for forecasting firms and when forecasts are more frequent or precise. We suggest that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we find that quarterly and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts; thus, even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This suggests a benefit of quarterly earnings forecasts possibly overlooked in recommendations from the United States Chamber of Commerce, CFA Institute, Business Roundtable Institute for Corporate Ethics, and The Conference Board to eliminate quarterly earnings guidance. 2008-06-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/95 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Management forecasts Future earnings response coefficient (FERC) Earnings guidance Forecast characteristics Accounting Corporate Finance International Business
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Management forecasts
Future earnings response coefficient (FERC)
Earnings guidance
Forecast characteristics
Accounting
Corporate Finance
International Business
spellingShingle Management forecasts
Future earnings response coefficient (FERC)
Earnings guidance
Forecast characteristics
Accounting
Corporate Finance
International Business
Choi, Jong-Hag
Myers, Linda
Ziebart, David
ZANG, Yoonseok
Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance
description Using 18,253 firm-year observations from 1998 through 2003, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether management earnings per share forecasts and their characteristics influence the future earnings response coefficient (FERC). We find that FERCs are greater for forecasting firms and when forecasts are more frequent or precise. We suggest that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we find that quarterly and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts; thus, even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This suggests a benefit of quarterly earnings forecasts possibly overlooked in recommendations from the United States Chamber of Commerce, CFA Institute, Business Roundtable Institute for Corporate Ethics, and The Conference Board to eliminate quarterly earnings guidance.
format text
author Choi, Jong-Hag
Myers, Linda
Ziebart, David
ZANG, Yoonseok
author_facet Choi, Jong-Hag
Myers, Linda
Ziebart, David
ZANG, Yoonseok
author_sort Choi, Jong-Hag
title Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_short Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_full Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_fullStr Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_full_unstemmed Do Management EPS Forecasts Allow Returns to Reflect Future Earnings? Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_sort do management eps forecasts allow returns to reflect future earnings? implications for the continuation of management’s quarterly earnings guidance
publisher Institutional Knowledge at Singapore Management University
publishDate 2008
url https://ink.library.smu.edu.sg/soa_research/95
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