Prior Forecasting Accuracy and Investor Reaction to Management Earnings Forecasts
Amy P. Hutton
Boston College - Carroll School of Management
Phillip C. Stocken
Dartmouth College - Tuck School of Business
June 8, 2009
We examine the properties of firms' forecasting records and whether the accuracy of their prior earnings forecasts affects investor response to their subsequent forecasts. Within the context of a Bayesian model of investor learning, we find that the stock price response to management forecast news is increasing in prior forecast accuracy and also in the length of a firm's forecasting record. Further, we document that investors are more responsive to extreme good and bad news forecasts when a firm has an established forecasting record. Overall, these results suggest that a firm’s prior forecasting behavior allows it to establish a forecasting reputation.
Number of Pages in PDF File: 46
Keywords: Management forecasts, reputation, voluntary disclosure
JEL Classification: G12, G18, G38, K22, G39, M41, M45
Date posted: October 2, 2005 ; Last revised: July 8, 2009
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.610 seconds