Do Firms’ Nonfinancial Disclosures Enhance the Value of Analyst Services?*

Abstract

Regulation FD recommends press releases as a primary avenue for timely disclosure of material information to market participants. Firms commonly issue product-related and business expansion information through press releases, yet no study examines how analysts respond to these information events. We find that forecasting activity nearly doubles at the disclosure date, and that forecasts associated with these disclosures become more accurate and less dispersed across analysts. Finally, in short windows around the disclosure date, the market’s reaction is concentrated at the date of the subsequent forecast revision. Overall, our results suggest that nonfinancial disclosures improve the quality and quantity of information in capital markets and appear to enhance the value of analysts’ services, even though the information is made widely available to all market participants at the time the firm makes the disclosure.

Keywords: Security analysts, Forecast error, Forecast dispersion, Disclosure, Information environment, Reg FD

JEL Classification: M41, G12, G29