D. Eric Hirst

Comprehensive income reporting and analysts' valuation judgments

This paper investigates whether clear reporting of comprehensive income (CI) and its components facilitates detection of earnings management by buy-side financial analysts and predictably affects their common stock price judgments. Financial reporting standards allow companies considerable flexibility in determining which accounts are aggregated into the individual line items in the primary financial statements. Because of the difficulty inherent in assessing the relevance and persistence of these amounts, users of financial accounting information often

Management Earnings Forecasts: A Review and Framework

SYNOPSIS: In this paper, we provide a framework in which to view management earnings forecasts. Specifically, we categorize earnings forecasts as having three components—antecedents, characteristics, and consequences—that roughly correspond to the timeline associated with an earnings forecast. By evaluating management earnings forecast research within the context of this framework, we render three conclusions. First, forecast characteristics appear to be the least understood component of earnings forecasts—both in terms of theory and empirical research—even though it is the component over which managers have the most control. Second, much of the prior research focuses on how one forecast antecedent or characteristic influences forecast consequences and does not study potential interactions among the three components. Third, much of the prior research ignores the iterative nature of management earnings forecasts—that is, forecast consequences of the current period influence antecedents and chosen characteristics in subsequent periods. Implications for researchers, educators, managers, investors, and regulators are provided.

How Disaggregated Forecasts Influence Investor Response to Subsequent Earnings Announcements

Firms often issue disaggregated earnings forecasts, and prior research reveals benefits to doing so. However, we hypothesize and experimentally find that the benefits of disaggregated forecasts do not necessarily carry over to the time of actual earnings announcements. Rather, disaggregated forecasts create multiple points of possible comparison between the forecast and the subsequent earnings announcement. Thus, when firms disaggregate forecasts and subsequently release disaggregated actual earnings numbers, investors reward firms that beat those multiple benchmarks, but punish firms that miss those multiple benchmarks. Thus, we show that issuing a disaggregated earnings forecast to achieve the associated benefits can backfire after the announcement of actual earnings. Our results have implications for researchers and firm managers.