Stephen P. Baginski

Intraindustry Information Transfers Associated with Management Forecasts of Earnings

This study documents information transfers associated with the sign and magnitude of the changes in earnings expectations conveyed by management forecasts. That is, the management forecast of one firm (discloser) generates unexpected price reactions for firms (nondisclosers) similar to the forecaster. The results are consistent with information transfers documented for releases of actual earnings (Foster [1981]) and sales announcements (Olsen and Dietrich [1985]).1 These results build on prior management forecast research that has documented a link between the sign and magnitude of the changes in earnings expectations conveyed by management forecasts and the unexpected share returns (price reactions) of forecasting firms (Ajinkya and

A TIME-SERIES APPROACH TO MEASURING THE DECLINE IN QUARTERLY EARNINGS PERSISTENCE

Abstract Although prior research documents an inter-temporal decline in earnings relevance for equity investors, precise evidence has not been collected on why the decline has occurred. We document a substantial decline in the persistence of quarterly accounting earnings over a 35-year period for a sample of New York Stock Exchange firms. Our findings hold regardless of whether firms are in industries with dramatic increases in spending on information technology through time or not. Further, neither ex ante measures of expected economic change (changes in barriers-to-entry and product type) nor an ex post measure of economic change (quarterly sales persistence) decline inter-temporally for our sample firms.

Economic determinants of quarterly earnings data

Abstract We conduct exploratory data analysis on the economic determinants of quarterly earnings data. After surveying the industrial organization literature, we selected firm-size, product-type and barriers-to-entry as independent variables useful in explaining autocorrelation in quarterly earnings and sales. We perform cross-sectional regression analysis on a sample of 364 calendar year-end. New York Stock Exchange firms. As our dependent variable, we employed both seasonal and non-seasonal lags of the levels and first differences of the sample autocorrelation functions (SACF) of quarterly earnings and sales data. Our results support a pervasive impact of firm-size on the levels of the SACF. This outcome is consistent with the notion that larger firms exhibit mare stable, higher pronounced levels of serial correlation in their quarterly earnings numbers than smaller firms. Results for the other economic variables were more contextual, depending m whether we used the full sample or a subgroup and on whether the data were differenced. Stronger results on the product-type and barriers-to-entry variables were documented for the seasonal firm subgroup at seasonal lags. This result is suggestive of an economic rationale for the seasonal behavior of quarterly earnings and sales data.

Forward-Looking Voluntary Disclosure in Proxy Contests

Using a unique, hand-gathered sample of 893 forward-looking voluntary disclosures by 70 proxy contest firms during 1992–2001, we examine whether managers temporarily alter the frequency and tone of their disclosures during proxy contests. Broadly consistent with the corporate control contest hypothesis, we find that, after controlling for performance and other determinants of disclosure, managers increase the frequency of forward-looking voluntary disclosures during the proxy contest relative to the pre-proxy period. After the proxy contest is resolved, managers decrease forward-looking voluntary disclosures. We also find that, after controlling for earnings-based performance and concurrent period stock returns, the voluntary forward-looking disclosure news is more positive, on average, during proxy contests relative to the pre-contest period. In addition, we find limited evidence that disclosure news is more positive during proxy contests relative to the post-contest period, suggesting that the more positive tone of the disclosures during proxy contests is temporary. Our results are robust to alternative estimation methods that model the endogeneity of the proxy contest event and to controlling for management tenure and turnover. In summary, proxy contest voluntary disclosure behavior is consistent with increased incentives to convince shareholders that managers are in control of the operating environment and to signal that poor past performance is transitory.

Strategy, Valuation, and Forecast Accuracy: Evidence from Italian Strategic Plan Disclosures

Abstract Using a sample of 264 strategic plan presentations by Milan Stock Exchange firms during 2001–2012, we present evidence of both a security price reaction and an increase in the accuracy of analysts’ earnings forecasts pursuant to plan disclosure. In the cross-section, the information content of the plan disclosures and the accuracy increase are incrementally associated with the extent of forward-looking narrative disclosures in the plan, after controlling for other disclosures within and outside the plan presentation and the fact that the firm has self-selected into the sample. Both quantitative and qualitative narrative disclosures are informative to investors and analysts. The results are driven by narrative disclosures about company strategy and action plans rather than about the business environment in which the company operates. Our study informs the current debate on the use of voluntary comprehensive, integrated, long-run-oriented strategic plan disclosure as a potential complement for disclosures such as quarterly earnings forecasts that have been described as an example of ‘short-termism’.

The probability of earnings-related disclosure as a determinant of predisclosure information production

Abstract Recent analytical research investigates the direct effects of public disclosure on security prices and its indirect impact through its effect on private information production. We contribute empirical evidence on the indirect effect of public disclosure by testing the hypothesis that predisclosure information production is increasing in the probability of a forthcoming disclosure. Using a pair-matched sample of 1,712 certain earnings releases and 1,712 less likely management forecasts from 1982–1986, evidence consistent with the hypothesis is provided. Supplemental tests show that the main result is not affected by cross-sectional differences in management forecast precision and likelihood, nor by the expectation of other earnings-related disclosures during certain times of the year. However, consistent with prior research documenting systematic differences in the relationship between earnings and security prices in the fourth quarter, we find that predisclosure information production before fourth quarter actual earnings releases is not significantly greater than before management forecasts of fourth quarter results.