Improvement in Clinical Trial Disclosures and Analysts' Forecast Accuracy: Evidence from the Pharmaceutical Industry

35 Pages Posted: 10 Oct 2016

See all articles by Maggie Hao

Maggie Hao

University of Houston, Clear Lake - School of Business

Dana A. Forgione

University of Texas at San Antonio - College of Business

Liang Guo

California State University, East Bay

Hongxian Zhang

Missouri University of Science and Technology

Date Written: October 8, 2016

Abstract

This paper examines whether financial analysts use the information contained in clinical trial disclosures to improve their forecast accuracy for pharmaceutical companies. Findings indicate that the improved clinical trial disclosures due to a quasi-regulation issued by the International Committee of Medical Journal Editors (ICMJE) significantly reduce analysts’ long-term forecast error. In addition, a propensity-score matching analysis provides additional strong evidence that issuance of the 2005 ICMJE’s regulation is accompanied by an average 45% decrease in long-term forecast error, and a more than 50% decrease in long-term forecast dispersion. This study contributes to the accounting literature regarding non-financial disclosures by providing the first insights into financial analysts’ use of clinical trial disclosures in their forecasts of future earnings. In addition, because the major event examined in this study is a quasi-regulation issued by the ICMJE, we provide additional insights on the effectiveness of industry-initiated regulations (or quasi-regulations) on non-financial disclosure practice.

Keywords: Analysts’ Forecast Accuracy; Voluntary Nonfinancial Disclosure; Clinical Trial Disclosures

JEL Classification: M41

Suggested Citation

Hao, Maggie and Forgione, Dana A. and Guo, Liang and Zhang, Hongxian, Improvement in Clinical Trial Disclosures and Analysts' Forecast Accuracy: Evidence from the Pharmaceutical Industry (October 8, 2016). Review of Quantitative Finance and Accounting, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2849728

Maggie Hao

University of Houston, Clear Lake - School of Business

2700 Bay Area Boulevard
Houston, TX 77058
United States

Dana A. Forgione

University of Texas at San Antonio - College of Business ( email )

One UTSA Circle
San Antonio, TX 78249
United States
+1.210.458.6318 (Phone)
+1.810.815.5378 (Fax)

HOME PAGE: http://www.utsa.edu

Liang Guo (Contact Author)

California State University, East Bay ( email )

Hongxian Zhang

Missouri University of Science and Technology ( email )

1870 Miner Cir

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