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
Date Written: 2014
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: Suggested Citation