Investors’ Reactions to Management Forecasts and Analysts’ Information Environment
Coauthor(s): Youngdeok Lim and Hyung Il Oh
This study examines whether analysts’ information environment is related to investor reactions to management forecasts. Using a sample of quarterly management forecasts from 1996 to 2010 for pre-announcement periods, we report that investors react negatively to approximately 40 percent of positive management forecasts. Then, we document that analyst efforts to discover idiosyncratic information are related to negative market responses to positive management forecasts. This relationship is based mostly on investor reactions to information not yet disclosed by management forecasts (i.e. management forecast errors). However, the relationship does not exist for firms that experience positive market reactions to positive management forecasts. Furthermore, for the post-Regulation Fair Disclosure (hereafter, Reg FD) period, the channel of the relationship between analysts’ information environment and investor reactions to management forecasts differs from the pre-Reg FD period. These findings suggest that the analysts’ information environment is relevant for investors to predict information not included in management forecasts.
Youngdeok Lim and Hyung Il Oh "Investors’ Reactions to Management Forecasts and Analysts’ Information Environment." , Columbia Business School, (2013).