Ambiguity and Familiarity Effects on Analyst-Manager Interactions

68 Pages Posted: 15 Jan 2007 Last revised: 13 Sep 2010

See all articles by Ning Du

Ning Du

DePaul University - School of Accountancy and MIS

Marjorie K. Shelley

University of Nebraska at Lincoln - School of Accountancy

Date Written: April 17, 2008

Abstract

This study investigates the effects of fundamentals ambiguity and guidance credibility on analyst forecast revisions and manager guidance truthfulness. We manipulate earnings probability precision and managers' (ex ante) guidance credibility in an experiment with an embedded sender-receiver game. We collect forecast revision decisions and managers' guidance choices and find that analysts display ambiguity aversion by (rationally) randomizing across action choices when earnings probabilities are ambiguous and no credible supplemental information is available. However, when credible supplemental information is available (guidance), analyst participants tend to use it. Our privately informed manager-participants are more truthful when guidance can be traced to them.

Keywords: ambiguity, information uncertainty, structural uncertainty, analyst forecasts, behavioral finance, sender-receiver game

JEL Classification: C91, G14, G29, D81, D83

Suggested Citation

Du, Ning and Shelley, Marjorie, Ambiguity and Familiarity Effects on Analyst-Manager Interactions (April 17, 2008). Available at SSRN: https://ssrn.com/abstract=956642 or http://dx.doi.org/10.2139/ssrn.956642

Ning Du

DePaul University - School of Accountancy and MIS ( email )

1 E. Jackson Blvd
Chicago, IL 60607
United States
312-362-8308 (Phone)

Marjorie Shelley (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

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