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Consistent Earnings Growth And The Credibility Of Management Forecasts, Adam S. Koch, Jong Chool Park

Accounting Faculty Publications

This paper examines the relation between a series of past earnings increases and the credibility of voluntary management earnings forecasts. We demonstrate that both analyst forecast revisions and stock price reactions around management earnings forecasts that contain good news are more pronounced when the firm has posted a string of recent earnings increases. These results are consistent with our primary hypothesis that voluntary management earnings forecasts are more believable when they are made by firms with a history of consistent growth in earnings. This effect is more pronounced when firms are not widely followed by analysts. Additional analysis suggests that …