Financial Signaling and Earnings Forecasts

Iuliia Brushko

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: This paper examines the extent to which financial signaling affects the analysts' and managers' forecast releases. The findings give evidence of heterogeneity of analysts' forecast errors between firms with strong financial indicators (high signal group), weak financial indicators (low signal group), and those with both positive and negative signals (mixed signal group). The paper further indicates that managers' forecast releases also depend on the type of the firm and that managers may try to use the heterogeneity in analysts' treatment. The findings also suggest that the analysts sometimes fail to adjust for managers' forecast biases and that is why may be misled by managers' forecasts. This provides evidence of inaccuracy on the part of analysts and potential gaming on information disclosures between analysts and managers.

Keywords: analysts' underreaction; earnings per share; analysts' forecast revisions; managers' forecast practices; earnings announcements (search for similar items in EconPapers)
JEL-codes: D84 G14 G17 G32 M40 (search for similar items in EconPapers)
Date: 2013-11
New Economics Papers: this item is included in nep-for
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp498

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