The Association between Quarter Length, Forecast Errors, and Firms’ Voluntary Disclosures

51 Pages Posted: 31 Aug 2018

See all articles by Stephen A. Hillegeist

Stephen A. Hillegeist

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy

James Kavourakis

University of Melbourne

Matt Pinnuck

University of Melbourne - Department of Accounting and Business Information Systems

Christopher Stewart

University of Melbourne

Date Written: August 2018

Abstract

Approximately 60% of adjacent fiscal quarters contain a different number of calendar days. Our preliminary results indicate it is important for analysts to adjust for changes in quarter length when making forecasts. However, we find the quarterly change in days is positively associated with analysts’ revenue and earnings forecasts errors, which indicates analysts systematically underestimate (overestimate) performance when quarter length increases (decreases). We find evidence indicating investors make similar errors as returns around earnings announcements are positively associated with the change in quarter length. Corroborating these findings, managers are more (less) likely to discuss quarter length during conference calls when quarter length decreases (increases). The results are consistent with managers’ strategic disclosure incentives. In summary, our evidence suggests analysts and investors fail to fully take account of the quasi-mechanical effect that quarter length has on firm performance and managers strategically alter their voluntary disclosures to take advantage of these failures.

Keywords: quarter length, firm performance, forecast errors, voluntary disclosures, abnormal returns

Suggested Citation

Hillegeist, Stephen A. and Kavourakis, James and Pinnuck, Matthew and Stewart, Christopher, The Association between Quarter Length, Forecast Errors, and Firms’ Voluntary Disclosures (August 2018). Available at SSRN: https://ssrn.com/abstract=3237142 or http://dx.doi.org/10.2139/ssrn.3237142

Stephen A. Hillegeist (Contact Author)

Arizona State University (ASU) - W. P. Carey School of Business, School of Accountancy ( email )

Tempe, AZ 85287-3706
United States
480-965-6614 (Phone)

James Kavourakis

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

Matthew Pinnuck

University of Melbourne - Department of Accounting and Business Information Systems ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia

Christopher Stewart

University of Melbourne ( email )

185 Pelham Street
Carlton, Victoria 3053
Australia

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