The impact of regulation fair disclosure on earnings management and analyst forecast bias

Investors' Differential Reaction to Positive versus Negative Earnings Surprises*

“…Reasons for analysts' optimism in the pre-Regulation Fair Disclosure period have been tied to strategic reporting on the part of analysts to promote revenue-generating businesses for their brokerage firms and to cultivate information access with the management of firms they follow (e.g., Dugar and Nathan 1995;Das, Levine, and Sivaramakrishnan 1998;Lim 2001); to the brokerage commission structure faced by analysts (e.g., Espahbodi, Dugar, and Tehranian 2001); to selective reporting on the part of analysts who report their beliefs only when they hold favorable views of the firm (McNichols and O'Brien 1997); and to information-processing biases (e.g., Abarbanell and Bernard 1992;Elgers and Lo 1994;Elliott, Philbrick, and Wiedman 1995). Kwag and Small (2007) provide evidence that analysts' optimistic bias continues in the post-Regulation Fair Disclosure period. 4.…”

The effect of Regulation Fair Disclosure on expectations management: International evidence

“…In addition, Francis et al (2006) report an increase in analyst report informativeness subsequent to Reg FD. Kwag and Small (2007) provide evidence that forecast accuracy has declined after Reg FD and that analysts are more prone to overestimate forecasts of earnings compared to the pre-Reg FD period. Janakiraman et al (2007) provide evidence that the first-forecast horizon, the number of calendar days between the first analyst forecast for a quarter and the end of the fiscal quarter, has decreased on average by twelve days, a 6% decrease, following Reg FD, suggesting a delay or decrease in information received by analysts.…”

Inter‐temporal changes in analysts’ forecast properties under the Australian continuous disclosure regime

“…Analysts’ forecasts have often been used in research to assess the impact of changes in corporate disclosure regulation (e.g. Irani and Karamanou, 2003; Irani, 2004; Mohanram and Sunder, 2006; Kwag and Small, 2007). 6…”