On the Use of Intra‐Industry Information to Improve Earnings Forecasts

William R. Baber, Jong‐Dae Kim and Krishna R. Kumar

Journal of Business Finance & Accounting, 1999, vol. 26, issue 9‐10, 1177-1198

Abstract: We investigate whether earnings forecasts are improved by earlier earnings disclosures by firms in the same industry. We find improvements for time series forecasts, but not for analysts' forecasts. Considering prior earnings announcements reduces correlations between forecast errors and security price reactions to earnings announcements, even when incorporating these announcements improves forecast accuracy. Our explanation for this anomaly, which is supported by additional analysis, is that intra‐industry information facilitates predicting transitory, rather than permanent, earnings components. The question of whether information transfers improve earnings forecasts provides the context for the analysis, but the primary contribution is the documentation of intra‐industry information transfers in a setting other than capital markets.

Date: 1999
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