Management Forecast Credibility and Underreaction to News
49 Pages Posted: 15 Sep 2006 Last revised: 18 Apr 2013
There are 2 versions of this paper
Management Forecast Credibility and Underreaction to News
Management Forecast Credibility and Underreaction to News
Date Written: March 1, 2012
Abstract
In this paper, we first document evidence of underreaction to management forecast news. We then hypothesize that the credibility of the forecast influences the magnitude of this underreaction. Relying on evidence that more credible forecasts are associated with a larger reaction in the short window around the management forecasts and a smaller post-management forecast drift in returns, we show that the magnitude of the underreaction is smaller for firms that provide more credible forecasts. Our paper contributes to the literature by providing out-of-sample evidence of the drift in returns documented in the post-earnings-announcement drift literature, with the credibility of the news being one explanation for the phenomenon.
Keywords: Market efficiency, Management forecasts, Earnings, Disclosure quality
JEL Classification: G12, G14, G30, M41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Role of Supplementary Statements with Management Earnings Forecasts
By Amy P. Hutton, Gregory S. Miller, ...
-
Do Managers Withhold Bad News?
By S.p. Kothari, Susan Shu, ...
-
By Marilyn F. Johnson, Ron Kasznik, ...
-
Does Disclosure Deter or Trigger Litigation?
By Laura Casares Field, Michelle Lowry, ...
-
Shareholder Wealth Effects of the Private Securities Litigation Reform Act of 1995
By Marilyn F. Johnson, Ron Kasznik, ...
-
Do Conference Calls Affect Analysts' Forecasts?
By Robert M. Bowen, Angela K. Davis, ...
-
The Financial Reporting Environment: Review of the Recent Literature
By Anne Beyer, Daniel A. Cohen, ...
-
Management Earnings Forecasts: A Review and Framework
By D. Eric Hirst, Lisa Koonce, ...