Analysts' use of range information provided in management earnings forecasts.
53 Pages Posted: 1 Sep 2012 Last revised: 29 Aug 2015
Date Written: August 27, 2015
This paper examines analyst responses to management forecasts issued as a range, a large and growing proportion of those forecasts. We find that information conveyed through the four parameters of the management forecasts - the upper and lower bounds, the width, and the midpoint - explains changes in consensus analysts’ forecasts and changes in the range of those forecasts for the current and future year. In addition, we provide initial evidence that information gleaned from each of these parameters is systematically related to reported earnings and that relying on this information improves analyst accuracy. In sum, we find that analysts react to information conveyed by all four parameters of a management range forecast and that these metrics are informative in large part because they provide information related to future reported earnings.
Keywords: Management earnings forecasts, analyst range forecast accuracy
JEL Classification: G12, G14, M41
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