The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance

Using a sample of 11,897 firm-year observations from 1998 through 2001, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether the issuance of management forecasts and the characteristics of those forecasts influence the...

Full description

Saved in:
Bibliographic Details
Main Authors: Choi, Jong-Hag, Myers, Linda, Ziebart, David, Zang, Yoonseok
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2008
Subjects:
Online Access:https://ink.library.smu.edu.sg/soa_research/240
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Singapore Management University
Language: English
id sg-smu-ink.soa_research-1239
record_format dspace
spelling sg-smu-ink.soa_research-12392010-09-22T09:12:05Z The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance Choi, Jong-Hag Myers, Linda Ziebart, David Zang, Yoonseok Using a sample of 11,897 firm-year observations from 1998 through 2001, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether the issuance of management forecasts and the characteristics of those forecasts influence the future earnings response coefficient (FERC). We find that FERCs are greater for firms that forecast earnings and for firms that forecast more frequently and/or more precisely, suggesting that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we also find that quarterly forecasts and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts, indicating that even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This latter finding suggests a benefit of quarterly earnings forecasts that may have been overlooked in recent recommendations from the United States (U.S.) Chamber of Commerce, the CFA Institute, the Business Roundtable Institute for Corporate Ethics, and The Conference Board to eliminate quarterly earnings guidance. 2008-08-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/240 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 Finance and Financial Management
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
Finance and Financial Management
spellingShingle Management forecasts
Future earnings response coefficient (FERC)
Earnings guidance
Forecast characteristics
Accounting
Corporate Finance
Finance and Financial Management
Choi, Jong-Hag
Myers, Linda
Ziebart, David
Zang, Yoonseok
The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance
description Using a sample of 11,897 firm-year observations from 1998 through 2001, we build on literature suggesting that more informative disclosures allow returns to better reflect future earnings, and test whether the issuance of management forecasts and the characteristics of those forecasts influence the future earnings response coefficient (FERC). We find that FERCs are greater for firms that forecast earnings and for firms that forecast more frequently and/or more precisely, suggesting that more frequent and more precise forecasts assist investors in better predicting future earnings. Importantly, we also find that quarterly forecasts and short-term forecasts incrementally increase the association between returns and future earnings beyond annual and long-term forecasts, indicating that even short-term, quarterly forecasts allow investors to form better expectations about future earnings. This latter finding suggests a benefit of quarterly earnings forecasts that may have been overlooked in recent recommendations from the United States (U.S.) Chamber of Commerce, the CFA Institute, the 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 The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_short The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_full The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_fullStr The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_full_unstemmed The Effect of Management Earnings Forecasts on the Relationship between Returns and Future Earnings and the Implications for the Continuation of Management’s Quarterly Earnings Guidance
title_sort effect of management earnings forecasts on the relationship between returns and future earnings and the 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/240
_version_ 1770568709791809536