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The effect of analyst forecasts during earnings announcements on investor responses to reported earnings
( Gerald J. Lobo ) , ( Minsup Song ) , ( Mary Stanford )
UCI I410-ECN-0102-2016-320-000430991
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Despite the increased frequency of analyst and management forecasts during earnings announcements, empirical evidence of their effects on investor responses to the earnings announcements is limited. We examine the implications of reinforcing and contradicting analyst forecasts issued during earnings announcements (days 0 and +1) on the market response to unexpected earnings. We classify forecasts as reinforcing when unexpected earnings are positive (negative) and concurrent analyst forecasts are higher (lower) than current year earnings, and as contradicting when unexpected earnings are positive (negative) and concurrent analyst forecasts are lower (higher) than current year earnings. We document greater earnings response coefficients for announcements accompanied by reinforcing analyst forecasts. Similarly, we find greater market responses to earnings announcements when management forecasts are reinforcing. These findings suggest that analyst forecasts at the time of earnings announcement provide incremental information regarding future earnings and that analyst and management forecasts convey complementary information about earnings announcements.

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