Unintended consequences of forecast disaggregation : a multi-period perspective

Lei DONG, Man Ching, Gladie LUI, On Wing, Bernard WONG

Research output: Journal PublicationsJournal Article (refereed)

1 Scopus Citations

Abstract

Prior research finds that investors respond more favorably to a disaggregated earnings forecast than to an aggregated one. The present study examines whether this initial favorable effect on investors’ decisions leads to investors giving management the benefit of the doubt, or backfires in the event of a subsequent earnings surprise announcement. The results of our experiment indicate a “backfire effect” consistent with Expectation Violation Theory. We find that investors’ negative reactions to an earnings surprise are stronger if they first observed a disaggregated forecast than if they first saw an aggregated forecast. The largest downward adjustment in investment interest occurs when the disaggregated forecast is later found to be overstated. This study provides evidence of the complexity of the effect of disaggregated earnings forecast and adds to the literature concerning the costs and benefits of accounting information disaggregation.
Original languageEnglish
Pages (from-to)1580-1595
Number of pages16
JournalContemporary Accounting Research
Volume34
Issue number3
DOIs
Publication statusPublished - 1 Jan 2017

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Unintended consequences
Disaggregation
Investors
Earnings surprises
Earnings forecasts
Accounting information
Experiment
Violations
Announcement
Costs and benefits

Cite this

DONG, Lei ; LUI, Man Ching, Gladie ; WONG, On Wing, Bernard. / Unintended consequences of forecast disaggregation : a multi-period perspective. In: Contemporary Accounting Research. 2017 ; Vol. 34, No. 3. pp. 1580-1595.
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Unintended consequences of forecast disaggregation : a multi-period perspective. / DONG, Lei; LUI, Man Ching, Gladie; WONG, On Wing, Bernard.

In: Contemporary Accounting Research, Vol. 34, No. 3, 01.01.2017, p. 1580-1595.

Research output: Journal PublicationsJournal Article (refereed)

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