A new measure of earnings forecast uncertainty

Sheng, Xuguang Simon; Thevenot, Maya

doi:10.1016/j.jacceco.2011.11.001

Cited by 42 publications

(57 citation statements)

References 25 publications

(25 reference statements)

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“…Lahiri and Sheng (2010) and Sheng and Thevenot (2012) provide evidence suggesting that dispersion approximates earnings forecast uncertainty for short-horizon forecasts, the forecasts we consider in this study.…”

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confidence: 80%

“…A clear advantage of dispersion is that it is an ex ante measure and available in real-time (Sheng and Thevenot 2012). Other proxies, such as realized earnings volatility, rely on time-series data and result in stale measures of Footnote 12 continued (i.e., share price).…”

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confidence: 99%

“…13 Our results are qualitatively similar if we scale the standard deviation of forecasts by the absolute value of the consensus, i.e., use the coefficient of variation (Diether et al 2002). uncertainty. A drawback of dispersion is that it is not a perfect measure of earnings forecast uncertainty (Barry and Jennings 1992;Abarbanell et al 1995;Sheng and Thevenot 2012). In addition, while our study focuses on the uncertainty faced by individual analysts, the use of dispersion hinges on the assumption that inter-analyst variation in forecasts captures average intra-analyst uncertainty.…”

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confidence: 99%

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Analyst information precision and small earnings surprises

Bissessur

Veenman

2016

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This study proposes and tests an alternative to the extant earnings management explanation for zero and small positive earnings surprises (i.e., analyst forecast errors). We argue that analysts' ability to strategically induce slight pessimism in earnings forecasts varies with the precision of their information. Accordingly, we predict that the probability that a firm reports a small positive instead of a small negative earnings surprise is negatively related to earnings forecast uncertainty, and we present evidence consistent with this prediction. Our findings have important implications for the earnings management interpretation of the asymmetry around zero in the frequency distribution of earnings surprises. We demonstrate how empirically controlling for earnings forecast uncertainty can materially change inferences in studies that employ the incidence of zero and small positive earnings surprises to categorize firms as suspected of managing earnings.

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Analyst information precision and small earnings surprises

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Veenman

2016

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“…Landsman et al (2012) also look at how earnings announcements affect the stock market, where these authors focus on how mandatory IFRS adoption has influenced this effect. Sheng and Thevenot (2012) propose a new earnings forecast uncertainty measure, which they use to demonstrate that forecasters focus more on the information in the earnings announcement if there is high uncertainty in the existing set of earnings forecasts.…”

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confidence: 99%

What Drives the Quotes of Earnings Forecasters?

Bruijn

Franses

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Earnings forecasts can be useful for investment decisions. Research on earnings forecasts has focused on forecast performance in relation to firm characteristics, on categorizing the analysts into groups with similar behaviour and on the effect of an earnings announcement by the firm on future earnings forecasts. In this paper we investigate the factors that determine the value of the forecast and also investigate to what extent the timing of the forecast can be modeled. We propose a novel methodology that allows for such an investigation. As an illustration we analyze within-year earnings forecasts for AMD in the period 1997 to 2011, where the data are obtained from the I/B/E/S database. Our empirical findings suggest clear drivers of the value and the timing of the earnings forecast. We thus show that not only the forecasts themselves are predictable, but that also the timing of the quotes is predictable to some extent. Terms of use: Documents in

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“…One of the main reasons for this ambiguity is that we only have indirect measures for divergence of opinion (Garfinkel, 2009) (Barron et al, 1998;Sheng and Thevenot, 2012). In line with these concerns, Doukas et al (2006) These drawbacks make it difficult to conclude whether evidence rejecting (or supporting) Miller's (1977) hypothesis is due to the theory itself, or the proxy used.…”

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confidence: 99%

Three Essays on Empirical Corporate Finance

Han¹

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This thesis comprises three essays on empirical corporate finance.The first essay provides a new explanation for investment-cash flow sensitivity from the perspective of CEO inside debt holdings. We examine the effect of CEO pensions and deferred compensation (inside debt) on investment-cash flow sensitivity for a sample of U.S. manufacturing firms from 2006 to 2012. We find that the firms with higher relative CEO leverage ratios (CEO's debt/equity ratio scaled by the firm's debt/equity ratio) generate higher investment-cash flow sensitivity. Moreover, one standard deviation increase in the logarithm of the relative CEO leverage ratio enlarges investmentcash flow sensitivity by 50%. This positive relationship still holds even after we take endogeneity and financial constraints into account.The second essay explores the net effect of a politically connected board on a firm. Using a quasinatural experiment in China -a regulatory change to forbid bureaucrats from sitting on the board of public firms -we address the causality by testing the market reaction. Those firms with politically connected directors who are targeted by the regulatory change show a significantly positive abnormal stock return on average. The result is robust for various model settings and for a matched sample using the propensity score methodology. Additionally, the announcement effect when a politically connected director resigns is significantly positive, and significantly higher than the effect when a non-connected director resigns. Overall, our results suggest that the agency cost effect of a politically connected director dominates the value effect.The third essay examines the effect of investor divergence of opinions on the long-run performance of private placements. We propose and construct a direct measure of investor divergence of opinion, based on auction bids data of the private placements in China. We find that firms with higher bids dispersion generate lower long-term stock returns after the issuance of private placements. This effect is economically significant and robust when controlling for market discount and for dispersion in analyst forecasts. Moreover, this negative relation is stronger for stocks with more stringent shortsale constraints. Our findings provide strong evidence in support of the Miller's (1977) divergence of opinion hypothesis.iii Declaration by AuthorThis thesis is composed of my original work, and contains no material previously published or written by another person except where due reference has been made in the text. I have clearly stated the contribution by others to jointly-authored works that I have included in my thesis.

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A new measure of earnings forecast uncertainty

Cited by 42 publications

References 25 publications

Analyst information precision and small earnings surprises

Analyst information precision and small earnings surprises

What Drives the Quotes of Earnings Forecasters?

Three Essays on Empirical Corporate Finance

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