The Effect of the Private Securities Litigation Reform Act on Analyst Forecast Properties: The Impact of Firm Size and Growth Opportunities

26 Pages Posted: 13 Aug 2006

See all articles by Sidney Leung

Sidney Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Abstract

We provide evidence that the effect of the Private Securities Litigation Reform Act (the Act) of 1995 on analyst forecast properties is conditional on firm size and growth opportunities. We show that analyst coverage, frequency of forecast revisions, forecast errors and dispersion after the Act decreased for large firms and for firms with low growth opportunities but increased for small firms and for firms with high growth opportunities. These results are consistent with the hypothesis that the Act results in additional high quality disclosures in large firms, which face higher litigation risk and tighter scrutiny from investors but not in smaller firms. Our findings of increases in analyst coverage and revision but deterioration in accuracy and precision of analyst forecasts for firms with high growth opportunities after the Act suggest that in spite of increased corporate disclosures, the information environment for analysts deteriorated in those firms.

Suggested Citation

Leung, Sidney and Srinidhi, Bin, The Effect of the Private Securities Litigation Reform Act on Analyst Forecast Properties: The Impact of Firm Size and Growth Opportunities. Journal of Business Finance & Accounting, Vol. 33, No. 5-6, pp. 767-792, June/July 2006. Available at SSRN: https://ssrn.com/abstract=924035 or http://dx.doi.org/10.1111/j.1468-5957.2006.00020.x

Sidney Leung (Contact Author)

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China
+852 2788-7924 (Phone)
+852 2788-7944 (Fax)

Bin Srinidhi

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

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