Oil and Gas industry, Financial reporting, Successful efforts method, Full cost method

Earnings announcements, Disclosures, Timeliness, Stock price reaction

Investigates the degree to which the superiority of analysts' corporate earnings forecasts is associated with firm characteristics. Analyst advantage over a time-series model to past earnings variability; Relationship between analyst advantage and the amount of coverage in the `Wall Street Journal' newspaper.

We re-investigate the market pricing of special items, with particular emphasis on how managers " frame " these non-operating earnings components via their inclusion or exclusion from " street " earnings, the earnings numbers that firms disclose in their press releases and that analysts track and forecast. When managers include the special items in " street earnings (i.e., " street " = GAAP), the market overprices them, believing the special items to be more persistent than they actually are. As a result, there is a negative relationship between the special items and future stock returns in the following year. However, when managers exclude special items from " street " earnings (i.e., " street " not equal GAAP), the market recognizes their transitory characteristic and the relationship between special items and returns is insignificant in the following year. We also demonstrate that the decision to include (exclude) special items with (from) " street " earnings is associated with whether inclusion or exclusion of special items a) increases earnings numbers, b) smoothes the earnings series, or c) helps managers to meet earnings benchmarks. These results suggest that the decision to include or exclude special items from " street " earnings is associated with managerial incentives to manage earnings numbers rather than signal the persistence of special items.

[This research investigates the degree to which the superiority of analysts' earnings forecasts (relative to a univariate time-series model) is associated with certain firm characteristics. The analysts' information advantage is characterized as being related to private information-gathering incentives, and to the amount of information disseminated about the firm. The objective is to determine whether analyst forecast superiority is related to firm characteristics not examined in previous research. Specifically, the investigation relates the analyst advantage over a time-series model to past earnings variability and the extent of coverage in The Wall Street Journal. Statistical controls were employed for the market value of the firm's common stock, the firm's number of lines of business, and the time lapse between the end of the previous fiscal quarter and the release of the earnings forecast. The methods of data analysis consist of estimating OLS regressions, heteroscedasticity-consistent estimators, and bootstrapping techniques. The results indicate, first, that the analyst advantage in forecast accuracy over a time-series model is materially related to the historical variability in the earnings time series. Second, no positive relation is evident in our data between the analyst advantage and firm size, a result that is at variance with some previous research. Third, the analyst advantage is positively related to the amount of coverage in The Wall Street Journal Index, which is consistent with the intuitive notion of prior research that analysts' forecasts improve as more information becomes available. Finally, an attempt was made to ensure that the results were not caused by violations of classical regression assumptions. This was accomplished by explicitly correcting for a nonconstant variance, and by allowing for cross-correlation using bootstrapping. The asymptotic results are very similar to the bootstrapping results, but neither adjustment has altered the primary findings using OLS.]

We investigate the relationship between earnings and one‐year‐ahead operating cash flows from 1973 to 2000. Although the extant research indicates a weakening relationship between contemporaneous earnings and stock prices over time, we find that the relationship between current earnings and future operating cash flows has increased over time. This result holds for numerous divisions of our sample. Out‐of‐sample predictions of operating cash flows generally show increasing forecast accuracy over time. Increasing accounting conservatism appears to play a role in this phenomenon.

We examine how Regulation FD changed analysts' reliance on firms' public disclosure. Regulation FD is associated with a stronger analyst response to earnings announcements, management forecasts and conference calls—that is, analysts respond to these events more quickly, more frequently and with larger forecast revisions after FD. Further, following public disclosure, the decline in analyst forecast dispersion and forecast error accelerates after FD. We find no such changes either for foreign ADR firms or around several confounding events. Overall, Regulation FD levels the playing field between the analysts and individual investors, thereby promoting “fair game” property of the market.

We investigate whether banks with low capital ratios use accounting accruals for capital ratio management. We focus on a time where we expect a change in bank managers behavior regarding certain accruals. In 1989 regulatory changes created (removed) incentives to depress loan loss provisions (write-offs) after (before) 1989. Our results show that banks with low capital ratios reduced their loan loss provisions and increased write-offs during the 1990–1992 period compared to the 1985–1988 period. Banks with high capital ratios exhibited no difference in loss provisions, but did significantly increase loan write-offs during 1990–92.

This research investigates whether volume reactions to a public announcement are related to changes in the risk of securities (i.e., investors undertake portfolio rebalancing when the risk of their portfolio becomes misaligned with their respective risk preferences). Our results document that an average (40 percent) change in beta is associated with a 0.10 percent increase in the number of shares traded in a ten-day period around the earnings announcement. Although risk clientele effects are less important than information effects, they are empirically significant.

This paper provides evidence that firms that have consistently met or beaten analysts’ earnings expectations (MBE) provide more frequent “bad news” management forecasts than firms with no established string of MBE, particularly when existing analyst forecasts are optimistic. This suggests that firms with a consistent MBE record are more likely to guide analysts’ expectations downward to avoid breaking the consistency. Subsequent analyst forecast revisions following bad news management forecasts issued by these firms are dampened, implying that analysts suspect that these forecasts may be opportunistic. The relation between management forecasts and MBE consistency is stronger after Regulation FD.