A Note on the Informational Content of Corporate Annual Earnings Forecasts.

Abstract ABSTRACT: This study examines whether disclosure of management's annual earnings forecasts provides investors with additional relevant information for their decisions. Investors' reaction is measured in terms of changes in daily stock prices. The significance of the unexpected returns resulting from forecasts is tested under the assumption of symmetric stable distribution. Buy- and sell-short strategies have been used to calculate cross-sectional averages and cumulative residuals. The findings of the study suggest that earnings forecasts are accompanied by price adjustments on the days surrounding the earnings disclosure date, implying that forecasts disclosure may cause investors to revise their expectations. These findings, however, relate to forecasts disclosed on a voluntary basis only, and do not necessarily pertain to mandatory disclosures.