Management earnings forecasts: their usefulness as a source of firm-specific information to security analysts

Although managers frequently release earnings forecasts, little is known about how this information affects investor beliefs. This study compares changes in analyst earnings forecasts following the release of management forecasts: (1) to changes in analyst forecasts of a control sample of nonforecasting firms; and (2) between management forecasts with differing degrees of accuracy. The forecasting error of analyst estimates for firms releasing management forecasts decreases more rapidly than the errors associated with the control firms, which implies that management forecasts are useful. Analysts apparently are capable of determining which management forecasts are most accurate and responding appropriately.