Once Is Not Enough: An Analysis of Management Updates of Annual Earnings Forecasts

Speaker: Prof. Li Yao (Concordia University)

Topic:	Once Is Not Enough: An Analysis of Management Updates of Annual Earnings Forecasts
Time&Date:	12:00pm-13:30pm, 2018/7/18
Venue:	Room A619, Teaching A
Speaker:	Prof. Li Yao (Concordia University)
Abstract:	Managers’ forecasts of annual earnings are often updated, sometimes in all interim quarters (i.e., regular updates). Consistent with regular updates being predetermined rather than spontaneously released, we find unique disclosure patterns that diverge from conventional knowledge about annual forecasts. First, most regular updaters’ initial forecasts are pessimistic relative to reported earnings, whereas most un-updated forecasts are optimistic; Second, when updated only once in the year, revisions are more likely downward than upward, whereas the opposite is true for regular updates; (3) updates are more likely to be reiterating updates (i.e., maintaining the same width and midpoint as the preceding forecasts) when followed by more updates. Analysts appear to recognize the pessimism in regular updaters’ initial forecasts and respond less strongly to bad news forecasts from regular updaters than from other firms. Our findings suggest regular updating is an important and unique phenomenon in management forecasts that previously has not been appreciated.