Management Earnings Forecasts and Value of Analyst Forecast Revisions

Prior studies evaluate the relative importance of the sources of value that financial analysts bring to the market based on the price impact of forecast revisions over the event time. We find that management earnings forecasts influence the timing and precision of analyst forecasts. More importantly, evidence suggests that prior studies’ finding of weaker (stronger) stock-price responses to forecast revisions in the period immediately after (before) the prior-quarter earnings announcement is likely to be the artifact of a temporal pattern of management earnings forecasts over the event time. To the extent that management earnings forecasts are public disclosures, our results suggest that the relative importance of analysts' information discovery role documented in prior studies is likely to be overstated.