Information Content of Analysts' Composite Forecast Revisions

In this paper we provide evidence on the relationship between revisions in analysts' composite earnings forecasts and contemporaneous stock price movements. Most of the research on forecasts of accounting earnings has focused on (1) whether earnings forecasts have information content, and (2) the pros and cons of regulations (standards) requiring earnings forecasts (Gonedes, Dopuch, and Penman 1976). The second issue is moot if earnings forecasts do not contain information. Empirical evidence suggests that management earnings forecasts are associated with significant security price revisions (Foster 1973, Patell 1976, Nichols and Tsay 1979, and Penman 1980). Similar results were obtained for analysts' forecasts (Gonedes, Dopuch, and Penman 1976). One aspect of this area of research which has been neglected is the relationship between analysts' forecasts and managements' forecasts. Normally, corporations do not issue public forecasts of accounting data on a regular basis.' However, security analysts are in frequent contact with corporations in an effort to confirm information or obtain new