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Title:Management earnings forecasts, security price variability, and the marginal information content of earnings announcements
Author(s):Liu, Chao-Shin
Doctoral Committee Chair(s):Ziebart, David A.
Department / Program:Accountancy
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Business Administration, Accounting
Abstract:The purpose of this study is to determine (1) whether management forecasts decrease the marginal information content of subsequent earnings announcements and (2) whether the market efficiently reflects the information contained in the management forecast. If management forecasts and subsequent earnings announcements convey similar information, the subsequent earnings announcement is expected to be less informative than the prior management forecast. Moreover, the earnings announcement preceded by a management forecast is also expected to be less informative than the earnings announcement without a previous management forecast.
Evidence consistent with these predictions is found using price variability to measure the degree of information content. This study also employs a system of equations model and demonstrates that the subsequent earnings announcements convey additional information to the market, with the additional information mainly associated with the ex-post management forecast error.
In addition, abnormal returns around management forecasts and those around subsequent earnings announcements are negatively correlated. This evidence suggests that the market may overreact to management earnings forecasts. The post-announcement drift phenomenon is also found in the context of management quarterly earnings forecasts.
Issue Date:1992
Rights Information:Copyright 1992 Liu, Chao-Shin
Date Available in IDEALS:2011-05-07
Identifier in Online Catalog:AAI9236523
OCLC Identifier:(UMI)AAI9236523

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