Do stock prices fully reflect the implications of current earnings for future earnings for AR1 firms?
Article Abstract:
A study extending previous research such as that of Bernard and Thomas (BT) concluding that stock prices do not fully reflect how current earnings will affect future earnings is presented. Such research is based on the assumption that quarterly earnings follow a specific complex process identified by Brown and Rozeff (BR), but it has already been show that few individuals fully understand a simple quarterly earnings-generation process; one possibility is that investors fail to fully appreciate implications of current earnings for future earnings due to the complexity of the BR model, and evidence based on a sample of firms whose quarterly earnings are generated by a simpler first order autoregressive process. Past research into the relationship between stock prices and earnings implications is validated, but is shown to only pertain to firms with less pre-disclosure information.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 2000
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Stock price behavior associated with managers' earnings and revenue forecasts
Article Abstract:
There is a correlation between the earnings forecasts of management and stock price reactions. A hypothesis concerning the informativeness of managers' earnings and revenue forecasts for predicting stock prices was used to examine the motivation and effects associated with revenue forecasts. The hypothesis contends that earnings forecasts are more informative when released without managers' forecasts of revenue, and managers' forecasts of revenues are informative about prices. An analysis of data on annual earnings and revenues and managers' forecasts of annual earnings from the Wall Street Journal Index of Jan 1978 to Dec 1982 revealed that earnings forecasts that were released without revenue forecasts were price informative, while those released with revenue forecasts were not.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1991
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An information interpretation of financial analyst superiority in forecasting earnings
Article Abstract:
A model is developed which examines the conditions in which a particular forecasting approach provides a superior measure of earnings surprise. The model examines the relation between financial analysts' forecast superiority and the firm's information environment. Data are drawn from Value Line Investment Survey forecasts of earnings for 168 firms. Superiority of financial analyst earnings forecasts is related positively to the dimensionality of the information set underlying the forecasts. Superiority of financial analysts forecasts is related negatively to the variance of information observations.
Publication Name: Journal of Accounting Research
Subject: Business
ISSN: 0021-8456
Year: 1987
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