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Financial Signaling and Earnings Forecasts

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  • Iuliia Brushko

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.

Suggested Citation

  • Iuliia Brushko, 2013. "Financial Signaling and Earnings Forecasts," CERGE-EI Working Papers wp498, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    • Handle: RePEc:cer:papers:wp498
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    File URL: http://www.cerge-ei.cz/pdf/wp/Wp498.pdf
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    More about this item

    Keywords

    analysts' underreaction; earnings per share; analysts' forecast revisions; managers' forecast practices; earnings announcements;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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