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Title:Analysts' long-term growth forecasts and the post-earnings-announcement drift
Author(s):He, Shuoyuan
Director of Research:Sougiannis, Theodore; Zhu, Wei
Doctoral Committee Chair(s):Sougiannis, Theodore
Doctoral Committee Member(s):Chan, Louis K.C.; Li, Laura Yue
Department / Program:Accountancy
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Analysts' long-term growth forecasts
Post-earnings-announcement drift
Abstract:I examine the relation between the presence of analysts’ long-term growth (LTG) forecasts and the post-earnings-announcement drift (PEAD). Using a sample of firm-quarters from 1995 to 2013, I find that the magnitude of PEAD is significantly smaller for firms with LTG forecasts. The relationship holds after controlling for a wide range of explanatory variables for PEAD returns or for the presence of LTG forecasts. I further investigate three non-exclusive hypotheses to explain this relationship. First, LTG forecasts may convey incremental value-relevant information that facilitates investors’ processing of short-term earnings information. Second, the presence of LTG forecasts may indicate superiority in analysts' short-term forecast ability and identify firms with more efficient short-term forecasts. Third, the presence of LTG forecasts may be associated with cross-sectional differences in the persistence of earnings surprises. I find that none of these explanations fully accounts for the negative relationship between the presence of LTG forecasts and PEAD returns. Instead, the relationship may be a result of the presence of LTG forecasts capturing some unobservable firm characteristics beyond those identified in prior studies. Overall, this study contributes to the PEAD literature by identifying a novel analyst-based predictor of the cross-sectional variation in PEAD returns. The findings also advance our understanding of LTG forecasts by (1) identifying several previously undocumented determinants of the presence of LTG forecasts such as earnings volatility, R&D intensity, and trading volume, and (2) documenting a positive association between the presence of LTG forecasts and the persistence in earnings surprises.
Issue Date:2016-04-22
Rights Information:Copyright 2016 Shuoyuan He
Date Available in IDEALS:2016-07-07
Date Deposited:2016-05

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