Is Forecast Disaggregation Always Beneficial?

Posted: 4 May 2013

See all articles by Lei Dong

Lei Dong

Eastern Washington University

Bernard Wong-On-Wing

Washington State University

Gladie Lui


Date Written: May 1, 2013


This paper examines how the level of disaggregation in earnings forecasts influences investors’ reactions to earnings surprises. Previous research finds that investors respond more favorably to a disaggregated forecast than to an aggregated one immediately after the forecast. However, given that earnings forecasts are necessarily followed by earnings announcements, this initial characterization portrays an incomplete picture of forecast disaggregation without its effect on investor reaction following actual earnings outcome. Using an experiment, we present evidence that investors react negatively to forecast inaccuracy irrespective of the valence of the earnings news. Further, in line with expectation violation theory, the negative reactions are amplified for a disaggregated forecast when compared with an aggregated forecast. Consequently, we find that the initial favorable perceptions following a disaggregated forecast are diluted in a positive earnings surprise condition and disappear in a negative earnings surprise condition. Our mediation test suggests that the downward adjustments in investment interest are fully mediated by the impairment of perceived management credibility. Our findings suggest that disaggregated disclosures are not always beneficial, and add to the growing literature concerning the costs and benefits of accounting information disaggregation.

Keywords: investor reactions, earnings surprise, earnings forecast, disaggregation

JEL Classification: M4, M41

Suggested Citation

Dong, Lei and Wong-On-Wing, Bernard and Lui, Gladie, Is Forecast Disaggregation Always Beneficial? (May 1, 2013). Available at SSRN:

Lei Dong (Contact Author)

Eastern Washington University ( email )

College of Business and Public Administration
668 N Riverpoint Blvd
Spokane, WA 99037
United States

Bernard Wong-On-Wing

Washington State University ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

Gladie Lui

Independent ( email )

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