The effects of forecast specificity on the asymmetric short-window share market response to management earnings forecasts
Purpose - This study aims to test the effects of forecast specificity on the asymmetric short-window share market response to management earnings forecasts (MEF). Design/methodology/approach - The paper examines a large sample of hand-checked Australian data over the period 1994 to 2001. Using an analyst news benchmark, it estimates a series of regressions to investigate whether the short-term impact from bad news announcements is greater in magnitude than from good news announcements and whether this differs between routine and non-routine MEFs. Additionally, it examines whether (after controlling for news content of MEF) there is a differential market impact conditional on specificity: minimum versus maximum versus range versus point. Findings - The results indicate that an asymmetric response is evident for the overall sample and a sub-set of non-routine forecasts. Contrary to predictions, the results show that forecast specificity, minimum, maximum, range and point MEFs make no additional contribution to the differences in the market reaction to bad or good news. Originality/value - The study extends the research investigating the short-run market impact of MEFs. The main element of innovation derives from the interaction between specificity and news content, as well as distinguishing between routine versus non-routine cases. Notably, it found little support for the view that more specific forecasts elicit greater market responses. What the results do suggest is that managers appear to choose the form of the forecast to suit the news being delivered. In particular, bad news delivered in a minimum forecast seems to be ignored by the market.
Volume (Year): 22 (2009)
Issue (Month): 3 (November)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=arj Email:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
- repec:bla:joares:v:29:y:1991:i:2:p:302-321 is not listed on IDEAS
- X. Frank Zhang, 2006. "Information Uncertainty and Stock Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 105-137, February.
- Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
- Amy P. Hutton & Gregory S. Miller & Douglas J. Skinner, 2003. "The Role of Supplementary Statements with Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 41(5), pages 867-890, December.
- repec:bla:joares:v:23:y:1985:i:1:p:268-295 is not listed on IDEAS
- Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
- Brown, Lawrence D. & Higgins, Huong N., 2005. "Managers' forecast guidance of analysts: International evidence," Journal of Accounting and Public Policy, Elsevier, vol. 24(4), pages 280-299.
- Jennifer Conrad & Bradford Cornell & Wayne R. Landsman, 2002. "When Is Bad News Really Bad News?," Journal of Finance, American Finance Association, vol. 57(6), pages 2507-2532, December.
- Paul R. Milgrom, 1981.
"Good News and Bad News: Representation Theorems and Applications,"
Bell Journal of Economics,
The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Highhouse, Scott, 1994. "A verbal protocol analysis of choice under ambiguity," Journal of Economic Psychology, Elsevier, vol. 15(4), pages 621-635, December.
- repec:bla:joares:v:37:y:1999:i::p:101-124 is not listed on IDEAS
- Rajan, Raghuram & Servaes, Henri, 1997. " Analyst Following of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 52(2), pages 507-529, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eme:arjpps:v:22:y:2009:i:3:p:237-261. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If references are entirely missing, you can add them using this form.