Economic Downturns and the Value of Management Earnings Forecasts

57 Pages Posted: 14 Jul 2019

See all articles by David A. Maslar

David A. Maslar

University of Tennessee, Knoxville - Department of Finance; University of Tennessee, Knoxville - College of Business Administration

Matthew Serfling

University of Tennessee

Sarah Shaikh

University of Washington - Department of Accounting

Date Written: July 12, 2019

Abstract

We examine how the state of the economy affects the extent to which investors value management earnings forecasts. We find that stock price reactions to news conveyed in management earnings forecasts are larger during economic downturns, as measured by quarters of negative U.S. GDP growth, NBER recession periods, and periods following negative market-wide stock returns. We also find that analysts make larger revisions to their forecasts in response to news in management earnings forecasts during downturns. Supporting the notion that the higher value investors and analysts place on management forecasts in downturns is justified, we show that management forecasts become even more accurate relative to analyst forecasts during these periods. Overall, these results are consistent with the hypothesis that because adverse economic conditions lower the precision of market participants’ beliefs about a firm’s value, investors and analysts value management-provided information more in downturns.

Keywords: Management Forecasts, News, Analysts, Reactions, Downturns

JEL Classification: G12, G14, M40, M41

Suggested Citation

Maslar, David A. and Serfling, Matthew and Shaikh, Sarah, Economic Downturns and the Value of Management Earnings Forecasts (July 12, 2019). Available at SSRN: https://ssrn.com/abstract=3419128 or http://dx.doi.org/10.2139/ssrn.3419128

David A. Maslar

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

University of Tennessee, Knoxville - College of Business Administration ( email )

453 Haslam Business Building
Knoxville, TN 37996
United States

Matthew Serfling (Contact Author)

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

Sarah Shaikh

University of Washington - Department of Accounting ( email )

Seattle, WA WA
United States

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