[Pownall et al. (1993) document that nearly 80 percent of their sample of voluntary management earnings forecasts are not precise point forecasts. Imprecise forecast forms include closed-interval forecasts (i.e., ranges), open-interval forecasts (i.e., minimums and maximums), and general impressions about firms' earnings prospects. We perform cross-sectional logistic regressions to document determinants of forecast precision. Our sample consists of 1,212 annual and interim management forecasts. After controlling for firm-specific and horizon-specific earnings uncertainty, we find that managers produce more precise forecasts of annual earnings for firms with greater analyst following (our proxy for private information) and for smaller firms (our proxy for public information). The results are robust across subsamples. The majority of the results, however, do not hold for interim forecasts.]

[This article provides evidence on the news content of managements' preliminary earnings estimates, which we define as projections of earnings conveyed in expectational language after the end of the reporting period but before the release of final earnings numbers. We examine stock price changes to assess whether a preponderance of these disclosures are interpreted as "good news" by investors, and the extent to which good news releases are disclosed earlier than bad news. Associated with preliminary earnings estimates are disclosure and timing issues. While previous theoretical work suggests managers have incentives to suppress or delay disclosure of adverse information (Verrecchia 1983; Dye 1985), studies examining the disclosure issue using management forecasts produced inconsistent results, and results on the timing of corporate earnings announcements are ambiguous. Although there is evidence on the information content of preliminary earnings estimates (Foster 1973), no study has used these data in investigating the relation between corporate disclosure and news content. Preliminary estimates are important because they embody aspects of disclosure choice similar to other voluntary disclosures such as forecasts, and the time lags between preliminary estimates and earnings releases are short, thereby assuring a strong timing aspect to their release. We document significant negative mean abnormal returns associated with the disclosure of preliminary estimates. The median is negative, but not significant at conventional levels. Tests on the timing issue indicate an ambiguous relation between disclosure timing and news content. Preliminary estimates of quarters 1-3 earnings are more likely to be bad news compared to estimates of quarter 4 and annual earnings, but within quarters there is no strong relation between news content and disclosure timing.]

[This study investigates the relation between financial analyst earnings forecast revisions and two independent variables: (1) a measure of management earnings forecast news issued prior to analyst revisions, and (2) measures derived from the security market price reaction to that news. Results indicate that security price reactions to management forecasts are useful in predicting subsequent analyst forecast revisions. Furthermore, the explanatory power of price reaction is a function of the timing of the management forecast release.]

ABSTRACT: Previous studies concerning the relative accuracy of management and financial analyst earnings forecasts have produced conflicting conclusions. Resolving this conflicting evidence is important because of the role relative accuracy potentially plays in such issues as the imposition of mandatory management forecast disclosures, the information content of management versus analyst forecast releases, and the motive of management in providing earnings forecasts to the market. Using weekly consensus (mean) financial analyst earnings forecasts, we document a close association between relative forecast accuracy and the timing of the release of the forecasts. We find that management forecasts issued subsequently to, coincidentally with, and up to four weeks prior to analyst forecasts are significantly more accurate than the analysts' estimates. The consensus analyst forecasts are more accurate beginning the ninth week after the release of the management forecast. Thus, by more closely controlling for the timing of the analysts' forecasts, we are able to provide a more precise picture of the dynamic nature of relative forecast accuracy.

[Previous studies concerning the relative accuracy of management and financial analyst earnings forecasts have produced conflicting conclusions. Resolving this conflicting evidence is important because of the role relative accuracy potentially plays in such issues as the imposition of mandatory management forecast disclosures, the information content of management versus analyst forecast releases, and the motive of management in providing earnings forecasts to the market. Using weekly consensus (mean) financial analyst earnings forecasts, we document a close association between relative forecast accuracy and the timing of the release of the forecasts. We find that management forecasts issued subsequently to, coincidentally with, and up to four weeks prior to analyst forecasts are significantly more accurate than the analysts' estimates. The consensus analyst forecasts are more accurate beginning the ninth week after the release of the management forecast. Thus, by more closely controlling for the timing of the analysts' forecasts, we are able to provide a more precise picture of the dynamic nature of relative forecast accuracy.]

Examines stock price changes to assess whether corporate disclosures of preliminary earnings are interpreted as good news by the investors. Extent to which good news are disclosed than bad news; Relationship between corporate disclosure and news content; Definition of stock return measure of news content.

[This study examines the effects of management forecast precision (i.e., lack of uncertainty) on equity pricing and the assessment of earnings uncertainty. Kim and Verrecchia (1991) modeled the price reaction to the public release of information as a positive function of both the unexpected component of the information and the information's precision. We test these predictions with a sample of 868 management forecasts for 1983-1986 annual and interim earnings. The use of management forecasts rather than actual earnings to test the precision hypothesis has the distinct advantage that the level of forecast precision is not directly regulated and thus may vary across forecasts. Further, managers explicitly disclose their level of uncertainty. Both this study and Pownall et al. (1993) document that most forecasts are open-interval (minimums and maximums), closed-interval (ranges), or general impressions rather than point estimates. The method used to test the precision hypothesis removes restrictions on the traditional regression of unexpected returns on unexpected earnings. Specifically, the slope and intercept coefficients that map unexpected earnings into unexpected returns can vary in the cross-section as a function of forecast precision. Our results support a direct relation between forecast precision and the importance of management forecasts for security pricing. Holthausen and Verrecchia (1990) and Morse et al. (1991) modeled a decrease in investors' consensus as a positive function of the magnitude of signal surprise and the dispersion of the perceived precision of the signal. We examine these predictions with a sample of 221 point and closed-interval (range) forecasts. We calculate whether the range of outcomes disclosed by a manager exceeds the range of Institutional Brokers Estimate System (IBES) analyst forecasts. We find this variable and the magnitude of unexpected security returns (a proxy for signal surprise) to be positively associated with increases in the standard deviation of IBES analyst forecasts. Morse et al. (1991) found the hypothesized relation between signal surprise and increase in analyst forecast variance, but were unable to separate the precision effect from the signal surprise effect. Managers' explicit labeling of forecasts as more uncertain through range disclosure permits the direct calculation of management forecast precision relative to analyst forecast precision. Our tests involve joint hypotheses of the effects of forecast precision on security prices and the credibility of managers' disclosures of forecast precision. Ajinkya and Gift (1984) developed and tested the "expectations adjustment hypothesis" which posits sufficient incentives for credible, symmetric forecast disclosure. King et al. (1990) argued that expectations adjustment also suggests credible labeling of the precision of forecasts.]

Pownall et al. (1993) document that nearly 80 percent of their sample of voluntary management earnings forecasts are not precise point forecasts. Imprecise forecast forms include closed-interval forecasts (i.e., ranges), open-interval forecasts (i.e., minimums and maximums), and general impressions about firms' earnings prospects. We perform cross-sectional logistic regressions to document determinants of forecast precision. Our sample consists of 1,212 annual and interim management forecasts. After controlling for firm-specific and horizon- specific earnings uncertainty, we find that managers produce more precise forecasts of annual earnings for firms with greater analyst following (our proxy for private information) and for smaller firms (our proxy for public information). The results are robust across subsamples. The majority of the results, however, do not hold for interim forecasts.

This study investigates the relation between financial analyst earnings forecast revisions and two independent variables: (1) a measure of management earnings forecast news issued prior to analyst revisions, and (2) measures derived from the security market price reaction to that news. Results indicate that security price reactions to management forecasts are useful in predicting subsequent analyst forecast revisions. Furthermore, the explanatory power of price reaction is a function of the timing of the management forecast release.