Once Is Not Enough: The Determinants and Consequences of Management Updates of Annual Forecasts
Dr. Michael TANG
Assistant Professor of Accounting
Stern School of Business
New York University
This study investigates a new disclosure phenomenon – managers updating their annual earnings forecasts, which is used by nearly 90% of annual forecasters in recent years. Consistent with the updating decisions largely being predetermined, we find the incidence and frequency of updates to be persistent at the firm level, especially when firms update in all quarters (regular updaters). Analysts’ reactions to managers’ initial forecasts are weaker for regular updaters, consistent with analysts anticipating subsequent updates. We also find updaters – especially regular updaters – to be more (less) timely than non-updaters in disclosing bad (good) news to the market, suggesting that frequent updates of annual forecasts serve as a major channel to quickly release bad news.