Improvement in clinical trial disclosures and analysts’ forecast accuracy: evidence from the pharmaceutical industry

Maggie Hao (), Dana A. Forgione (), Liang Guo () and Hongxian Zhang ()
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Maggie Hao: University of Houston Clear Lake
Dana A. Forgione: University of Texas at San Antonio
Liang Guo: California State University, San Bernardino
Hongxian Zhang: Missouri University of Science and Technology

Review of Quantitative Finance and Accounting, 2017, vol. 49, issue 3, No 8, 785-810

Abstract: Abstract This paper examines whether financial analysts use the information contained in clinical trial disclosures to improve their forecast accuracy for pharmaceutical companies. Findings indicate that the improved clinical trial disclosures due to a quasi-regulation issued by the International Committee of Medical Journal Editors (ICMJE) significantly reduce analysts’ long-term forecast error. In addition, a propensity-score matching analysis provides additional strong evidence that issuance of the 2005 ICMJE’s regulation is accompanied by an average 45 % decrease in long-term forecast error, and a more than 50 % decrease in long-term forecast dispersion. This study contributes to the accounting literature regarding nonfinancial disclosures by providing the first insights into financial analysts’ use of clinical trial disclosures in their forecasts of future earnings. In addition, because the major event examined in this study is a quasi-regulation issued by the ICMJE, we provide additional insights on the effectiveness of industry-initiated regulations (or quasi-regulations) on nonfinancial disclosure practice.

Keywords: Non-financial disclosure; Analyst forecast accuracy; Clinical trial disclosures; Pharmaceutical companies (search for similar items in EconPapers)
JEL-codes: G14 G18 M41 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-016-0608-7

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