Diversified Firms and Analyst Earnings Forecasts: The Role of Management Guidance at the Segment Level

Forthcoming at Journal of International Accounting Research

72 Pages Posted: 4 Jan 2018 Last revised: 10 May 2019

See all articles by Paul André

Paul André

HEC Lausanne

Andrei Filip

ESSEC Business School

Rucsandra Moldovan

Concordia University, Quebec - Department of Accountancy

Date Written: March 11, 2019

Abstract

Using a unique, manually-collected dataset, we are the first to analyze the role that management guidance at the segment level plays for the financial analyst earnings forecasts of diversified firms. About half of the diversified European firms in the sample provide segment-level guidance (SLG), with considerable variation in precision and disaggregation. We find that (1) analyst earnings forecast errors are smaller, and (2) the magnitude of disagreement between individual forecasts and the average forecast is lower for firms that provide SLG, beyond the effect of group-level guidance. The results hold in matched samples and within-firm analyses around SLG initiation. We further show that the results are stronger in situations characterized by higher information asymmetry, but not in situations characterized by operational complexity. Overall, the results imply that SLG mitigates to some extent the difficult task that financial analysts face when valuing diversified companies.

Keywords: Management guidance; Segment disclosure; Financial analysts; Analyst earnings forecasts; Corporate diversification

JEL Classification: M41, L25, G20

Suggested Citation

Andre, Paul and Filip, Andrei and Moldovan, Rucsandra, Diversified Firms and Analyst Earnings Forecasts: The Role of Management Guidance at the Segment Level (March 11, 2019). Forthcoming at Journal of International Accounting Research. Available at SSRN: https://ssrn.com/abstract=3094932 or http://dx.doi.org/10.2139/ssrn.3094932

Paul Andre

HEC Lausanne ( email )

UNIL-Dorigny
Anthropole
Lausanne, 1015
Switzerland

Andrei Filip

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France
+33 1 34 43 33 61 (Phone)

Rucsandra Moldovan (Contact Author)

Concordia University, Quebec - Department of Accountancy ( email )

Montreal, Quebec H3G 1M8
Canada
+1-514-848-2424 ext 2528 (Phone)

HOME PAGE: http://https://sites.google.com/site/rucsandramoldovan

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