The Earnings Expectations Game and the Dispersion Anomaly

• 成果类型: Article
• 署名作者: Veenman, David; Verwijmeren, Patrick
• 署名单位: University of Amsterdam; Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; University of Melbourne
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2021.3983
• 发表日期: 2022
• 页码: 3129-3149
• 关键词: EARNINGS ANNOUNCEMENTS; Sell-side analysts; forecast bias; expectations management; Mispricing; forecast dispersion; Earnings surprises

摘要

This study examines the role of differences in firms' propensity to meet earnings expectations in explaining why firms with high analyst forecast dispersion experience relatively low future stock returns. We first demonstrate that the negative relation between dispersion and returns is concentrated around earnings announcements. Next, we show that this relation disappears when we control for ex ante measures of firms' propensity to meet earnings expectations and that the component of dispersion explained by these measures drives the return predictability of dispersion. We further demonstrate that firms with low analyst dispersion are substantially more likely to achieve positive earnings surprises and provide new evidence consistent with both expectations management and strategic forecast pessimism explaining this result. Overall, we conclude that investor mispricing of firms' participation in the earnings-expectations game provides a viable explanation for the dispersion anomaly.