Future Earnings Expectations and Earnings Attributes

The Association of Stock Distribution Announcements and Earnings Performance

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x8800300203 ◽

1988 ◽

Vol 3 (2) ◽

pp. 113-132 ◽

Cited By ~ 10

Author(s):

David T. Doran ◽

Robert Nachtmann

Keyword(s):

Forecast Error ◽

Control Sample ◽

Earnings Forecasts ◽

Earnings Expectations ◽

Future Earnings ◽

Earnings Information ◽

Unexpected Earnings ◽

Large Measurement ◽

Stock Dividends ◽

Large Measurement Error

This paper analyzes the association of unexpected earnings with stock dividend and stock split announcements. Unexpected earnings are modeled as the percentage deviation of actual earnings from expected. Value Line's earnings forecasts are used as a surrogate for the market's timely expectation of future earnings. The primary findings are: (1) postdistribution earnings realizations are greater than expected; and (2) deviations of realized earnings from expected are (a) directly related to the size of the stock distribution and (b) inversely related to the level of market anticipation of the event. Further, distribution size may be a proxy for market anticipation in that small distributions (stock dividends) are dominated by anticipated events and large distributions (stock splits) by unanticipated events. These findings are robust across samples that control for large measurement error due to small levels of forecasted earnings, and event contamination due to the simultaneous announcement of firm-related events. Examination of analysts' forecasts immediately following the event indicates a significant upward revision in earnings expectations. This finding, coupled with an analysis of a control sample of Value Line earnings forecasts, indicates that the observed unexpected earnings are not the result of systematic Value Line forecast error. Therefore, the paper provides support for the notion that stock distribution announcements convey future earnings information.

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Casting Conference Calls

Management Science ◽

10.1287/mnsc.2019.3423 ◽

2020 ◽

Vol 66 (11) ◽

pp. 5015-5039 ◽

Cited By ~ 3

Author(s):

Lauren Cohen ◽

Dong Lou ◽

Christopher J. Malloy

Keyword(s):

Firm Behavior ◽

Abnormal Returns ◽

Discretionary Accruals ◽

Conference Calls ◽

Earnings Expectations ◽

Earnings Restatements ◽

Future Earnings ◽

Control Information ◽

The United Kingdom ◽

Earnings Surprises

We explore a subtle but important mechanism through which firms can control information flow to the markets. We find that firms that “cast” their conference calls by disproportionately calling on bullish analysts tend to underperform in the future. Firms that call on more favorable analysts experience more negative future earnings surprises and more future earnings restatements. A long–short portfolio that exploits this differential firm behavior earns abnormal returns of up to 149 basis points per month or almost 18% per year. We find similar evidence in an international sample of earnings call transcripts from the United Kingdom, Canada, France, and Japan. Firms with higher discretionary accruals, firms that barely meet/exceed earnings expectations, and firms (and their executives) that are about to issue equity, sell shares, and exercise options are all significantly more likely to cast their earnings calls. This paper was accepted by Tyler Shumway, finance.

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