Consequences of Management Earnings Forecast Consistency

This paper investigates the effects of consistent disclosure of management earnings forecast characteristics on the information environment. Building on previous literature on guidance characteristics, I focus on a new measure of consistency based on three attributes: precision, level of disaggregation and additional qualitative information. I classify firms as “consistent” based on persistence of characteristics over time, and exploit two different settings: one to test the incremental level of consistency (firm-based consistency) and the other to test consistency at the individual level. The paper studies management earnings forecasts’ consistency from a longitudinal perspective to examine its effect on the properties of financial analysts, while previous studies on dynamic disclosure only assess the extent to which firms’ behavior in the past affect the likelihood of providing voluntary disclosure in the future. Preliminary results suggest that a strong level of consistency positively affects a firm’s information environment, helping analysts to align their expectations with managers. When looking at individual consistent characteristics, the positive effect on analysts dispersion seems to be driven by all the three characteristics but with a larger impact of consistency in precision. Accuracy is positively influenced by consistency in the level of disaggregation, while analysts coverage increases are attributable to the level of precision being unchanged from year to year.