Analyst Reactions to Expectations Management in the Post-Regulation Fair Disclosure Period

The International Journal of Business and Finance Research, v. 8 (5) p. 47-58, 2014

12 Pages Posted: 12 Dec 2014

See all articles by Sherry F. Li

Sherry F. Li

Rider University

Fang Sun

CUNY Hunter College

Fengyun Wu

Manhattan College

Date Written: 2014

Abstract

Using a uniquely hand-collected dataset, we examine how financial analysts react to expectations management in the post-Regulation Fair Disclosure (FD) period. We find evidence that management issues pessimistic public guidance to lower analysts’ expectations to a beatable level in the new regulatory environment. Majority of the analysts revised their forecasts downward immediately (in terms of days rather than weeks) after the issuance of a pessimistic public guidance. The magnitude of the downward revision is significantly greater for firms that beat the expectations through managerial guidance than firms that beat the expectations without guidance. In addition, firms that beat analysts’ expectations through pessimistic guidance are able to achieve a larger positive earnings surprise at the earnings announcement than the “legitimate beaters”.

Keywords: Expectations Management, Earnings Guidance, Managerial Guidance, Regulation FD, Analysts’ Expectations

JEL Classification: M41, M48

Suggested Citation

Li, Sherry F. and Sun, Fang and Wu, Fengyun, Analyst Reactions to Expectations Management in the Post-Regulation Fair Disclosure Period (2014). The International Journal of Business and Finance Research, v. 8 (5) p. 47-58, 2014, Available at SSRN: https://ssrn.com/abstract=2456005

Sherry F. Li (Contact Author)

Rider University ( email )

United States

Fang Sun

CUNY Hunter College ( email )

695 Park Avenue
New York, NY 10065
United States

Fengyun Wu

Manhattan College ( email )

Manhattan College Parkway
Riverdale, NY 10471
United States

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