Analysts' long-term growth forecasts and the post-earnings-announcement drift

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.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Accountancy

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2016

Author dc:creator

• He, Shuoyuan

Contributors dc:contributor

• Sougiannis, Theodore
• Zhu, Wei
• Chan, Louis K.C.
• Li, Laura Yue

• Analysts' long-term growth forecasts
• Post-earnings-announcement drift

Statement dc:rights

• Copyright 2016 Shuoyuan He

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/90806

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/90806