Diversified Firms and Analysts' Earnings Forecasts: The Role of Management Guidance at the Segment Level

2017 ◽  
Author(s):  
Paul Andrr ◽  
Andrei Filip ◽  
Rucsandra Moldovan
Keyword(s):  
Earnings Forecasts ◽  
Management Guidance ◽  
Diversified Firms

Diversified Firms and Analyst Earnings Forecasts: The Role of Management Guidance at the Segment Level

2019 ◽  
Vol 18 (3) ◽  
pp. 1-38 ◽  
Author(s):  
Paul André ◽  
Andrei Filip ◽  
Rucsandra Moldovan
Keyword(s):  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Group Level ◽  
Financial Analyst ◽  
Management Guidance ◽  
Analyst Earnings ◽  
Diversified Firms ◽  
Matched Samples

ABSTRACT Using a unique, manually collected dataset, we are the first to analyze the role that management guidance at the segment level plays for the financial analyst earnings forecasts of diversified firms. About half of the diversified European firms in the sample provide segment-level guidance (SLG), with considerable variation in precision and disaggregation. We find that (1) analyst earnings forecast errors are smaller, and (2) the magnitude of disagreement between individual forecasts and the average forecast is lower for firms that provide SLG, beyond the effect of group-level guidance. The results hold in matched samples and within-firm analyses around SLG initiation. We further show that the results are stronger in situations characterized by higher information asymmetry, but not in situations characterized by operational complexity. Overall, the results imply that SLG mitigates, to some extent, the difficult task that financial analysts face when valuing diversified companies.

The Rewards for Meeting or Beating Managers' Own Earnings Guidance

2020 ◽  
Author(s):  
Kai Wai Hui ◽  
Alfred Z. Liu ◽  
Yao Zhang
Keyword(s):  
Stock Return ◽  
Earnings Forecasts ◽  
Earnings Guidance ◽  
Cross Sectional ◽  
Earnings Expectations ◽  
Future Performance ◽  
Management Guidance ◽  
Prior Literature ◽  
Management Earnings Guidance ◽  
Analyst Earnings

This study documents a stock return premium for meeting or beating management's own earnings guidance (MBMG) that is separate and distinct from the premium for meeting or beating analysts' earnings forecasts (MBAF) documented in prior literature. Cross-sectional analyses reveal that the MBMG premium relative to the MBAF premium increases when management guidance is more informative. We also find that MBMG is incrementally informative about a firm's future performance after considering MBAF. Our findings suggest that investors consider management earnings guidance to be a performance threshold in addition to analyst earnings forecasts when forming earnings expectations.

The Economic Impact of Corporate Capital Expenditures: Focused Firms versus Diversified Firms

2006 ◽  
Vol 41 (2) ◽  
pp. 341-355 ◽  
Author(s):  
Sheng-Syan Chen
Keyword(s):  
Economic Impact ◽  
Capital Markets ◽  
Operating Performance ◽  
Capital Expenditures ◽  
Internal Capital Markets ◽  
Capital Investments ◽  
Corporate Capital ◽  
Investment Opportunities ◽  
Diversified Firms

AbstractThis paper examines the role of focus versus diversification in explaining the economic impact of corporate capital investments. I find that the stock market's responses to announcements of capital investments are more favorable for focused firms than for diversified firms. I also show that focused firms exhibit significantly better post-investment operating performance than diversified firms. The overall findings in this study suggest that the investment opportunities hypothesis dominates the internal capital markets hypothesis in terms of the net economic impact of capital investments on the investing firms.

scholarly journals The Role of Anchoring Bias in the Equity Market: Evidence from Analysts’ Earnings Forecasts and Stock Returns

2012 ◽  
Vol 48 (1) ◽  
pp. 47-76 ◽  
Author(s):  
Ling Cen ◽  
Gilles Hilary ◽  
K. C. John Wei
Keyword(s):  
Stock Returns ◽  
Earnings Forecasts ◽  
Equity Market ◽  
Stock Splits ◽  
Forecast Errors ◽  
Forecast Revisions ◽  
Earnings Per Share ◽  
Earnings Surprises ◽  
Anchoring Bias

AbstractWe test the implications of anchoring bias associated with forecast earnings per share (FEPS) for forecast errors, earnings surprises, stock returns, and stock splits. We find that analysts make optimistic (pessimistic) forecasts when a firm’s FEPS is lower (higher) than the industry median. Further, firms with FEPS greater (lower) than the industry median experience abnormally high (low) future stock returns, particularly around subsequent earnings announcement dates. These firms are also more likely to engage in stock splits. Finally, split firms experience more positive forecast revisions, more negative forecast errors, and more negative earnings surprises after stock splits.

Analysts’ Incentives to Overweight Management Guidance When Revising Their Short-Term Earnings Forecasts

2010 ◽  
Vol 85 (5) ◽  
pp. 1617-1646 ◽  
Author(s):  
Mei Feng ◽  
Sarah McVay
Keyword(s):  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Investment Banking ◽  
Equity Offerings ◽  
Short Term ◽  
Management Guidance ◽  
Banking Business

ABSTRACT: We document that, when revising their short-term earnings forecasts in response to management guidance, analysts wishing to curry favor with management weight the guidance more heavily than predicted, based on the credibility and usefulness of the guidance. This overweighting of guidance is present prior to equity offerings and other events that could lead to investment banking business. Although analysts sacrifice their forecast accuracy by overweighting management guidance, they appear to benefit, on average, by subsequently gaining the underwriting business for their banks. Thus, while analysts wishing to please managers are optimistic in their long-term earnings forecasts, they take their cue from management when determining their short-term earnings forecasts.

scholarly journals THE EFFECT OF INNOVATIVENESS ON THE RELATIONSHIP BETWEEN DIVERSIFICATION AND SLACK

2018 ◽  
Vol 16 (3) ◽  
pp. 263-277
Author(s):  
Fuad Fuad
Keyword(s):  
Structural Equation ◽  
Equation Modeling ◽  
Best Interest ◽  
Budgetary Slack ◽  
Incentive Schemes ◽  
Business Units ◽  
Diversified Firms ◽  
The Relationship ◽  
Nonsignificant Effect

The main purpose of this paper is to investigate the management’s willingness to act in the best interest of the top corporate. Particularly, this study examines the role of incentive schemes to reduce the presence of budgetary slack in the business units budget. Pilot study was conducted to 34 respondents that represented the sample of this study to ensure the feasibility and clarity of questionnaires and collected comments from them. Using Moderated Structural Equation Modeling, this study found that diversified firms can not control the presence of budgetary slack. Moreover, this study found that the significance relationship between diversification and budgetary slack was moderated by the firms’ value orientation towards innovation. The results also revealed that, out of three incentive schemes, only corporate-based incentive was able to reduce the presence of budgetary slack. This paper suggest interested researcher to use other measures of incentives such as group-based versus tournament-based incentive. This study can be concluded that agency perspectives may no longer be suitable to explain the presence of budgetary slack in their business units as the nonsignificant effect found on the relationship between incentive schemes on budgetary slack.  

scholarly journals Do Innovative Firms Communicate More? Evidence from the Relation between Patenting and Management Guidance

2020 ◽  
pp. 0000-0000
Author(s):  
Sterling Huang ◽  
Jeffrey Ng ◽  
Tharindra Ranasinghe ◽  
Mingyue Zhang
Keyword(s):  
Voluntary Disclosure ◽  
Regulation Fair Disclosure ◽  
Fair Disclosure ◽  
Information Demand ◽  
Disclosure Decisions ◽  
Management Guidance ◽  
Proprietary Cost ◽  
Role Of Information ◽  
Innovation Outcomes

Successful innovations could induce more disclosure if the information asymmetry between the firm and its investors about post-innovation outcomes leads investors to demand more information. However, such innovations also likely entail greater proprietary cost concerns, which deter disclosure. This paper uses patent grants to examine the effect of innovation success on management guidance behavior. We find that more management guidance follows patent grants, suggesting that despite disclosure cost concerns, firms with successful innovations do respond to information demand. This association is stronger after enactment of Regulation Fair Disclosure and for firms with greater institutional investor ownership, further highlighting the role of information demand. The association is weaker for firms with more competition, consistent with proprietary cost concerns having a moderating impact. Overall, our findings suggest that innovation creates demand for more voluntary disclosure and firms' disclosure decisions following innovation outcomes vary in ways that disclosure theory and economic intuition predict.

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