Analyst Reactions to Expectations Management in the Post-Regulation Fair Disclosure Period

Sherry Fang Li, Fang Sun and Fengyun Wu

The International Journal of Business and Finance Research, 2014, vol. 8, issue 5, 47-58

Abstract: Using a uniquely hand-collected dataset, we examine how financial analysts react to expectations management in the post-Regulation Fair Disclosure (FD) period. We find evidence that management issues pessimistic public guidance to lower analysts’ expectations to a beatable level in the new regulatory environment. Majority of the analysts revised their forecasts downward immediately (in terms of days rather than weeks) after the issuance of a pessimistic public guidance. The magnitude of the downward revision is significantly greater for firms that beat the expectations through managerial guidance than firms that beat the expectations without guidance. In addition, firms that beat analysts’ expectations through pessimistic guidance are able to achieve a larger positive earnings surprise at the earnings announcement than the legitimate beaters.

Keywords: Expectations Management; Earnings Guidance; Managerial Guidance; Regulation FD; Analysts’ Expectations (search for similar items in EconPapers)
JEL-codes: M41 M48 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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