How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements

35 Pages Posted: 14 Aug 2017 Last revised: 30 Aug 2018

See all articles by Shana Clor-Proell

Shana Clor-Proell

Texas Christian University - Department of Accounting

D. Eric Hirst

University of Texas at Austin

Lisa Koonce

University of Texas

Nicholas Seybert

University of Maryland - Department of Accounting & Information Assurance

Date Written: July 13, 2018

Abstract

Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers.

Keywords: Disaggregation, Multiple Reference Points Theory, Management Earnings Forecasts, Earnings Announcements

JEL Classification: G11, M40, M41

Suggested Citation

Clor-Proell, Shana and Hirst, D. Eric and Koonce, Lisa L. and Seybert, Nicholas, How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements (July 13, 2018). Available at SSRN: https://ssrn.com/abstract=3017800 or http://dx.doi.org/10.2139/ssrn.3017800

Shana Clor-Proell (Contact Author)

Texas Christian University - Department of Accounting ( email )

M.J. Neeley School of Business
TCU Box 298530
Fort Worth, TX 76129
United States

D. Eric Hirst

University of Texas at Austin ( email )

CBA 4M.202 McCombs School of Business
Austin, TX 78712
United States
512-471-5565 (Phone)
512-471-3904 (Fax)

HOME PAGE: http://www.mccombs.utexas.edu/faculty/Eric.hirst/

Lisa L. Koonce

University of Texas ( email )

Dept. of Accounting
McCombs School of Business
Austin, TX 78712
United States
512-471-5576 (Phone)
512-471-3904 (Fax)

Nicholas Seybert

University of Maryland - Department of Accounting & Information Assurance ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States

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