Range has it: decoding the information content of forecast ranges
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Range forecasts have emerged as the predominant form of management forecasts, but prior research has overlooked the information conveyed by forecast ranges. This study fills this void by examining the information content of the extent to which managers’ forecast ranges overlap with the range of individual analysts’ pre-existing estimates (i.e., overlap). We expect managers to signal their superior private information by issuing low-overlap forecasts. We predict and find that, compared with high-overlap forecasts, low-overlap forecasts are associated with stronger market reactions and higher accuracy of management forecasts relative to analyst estimates. Moreover, when responding to low-overlap management forecasts, analysts with prior estimates out of management forecast ranges are more likely to revise into the management forecast range, less likely to revise toward the consensus, and more likely to improve in revised forecast accuracy. Our findings suggest that investors and analysts view low-overlap management forecasts as signals of superior private information.
KeywordsManagement earnings forecasts Analyst earnings forecasts Range forecasts Overlap
We are grateful for the financial support of our respective institutions, and we are thankful for many helpful comments and suggestions from Richard Sloan (the editor), two anonymous referees, as well as Jeremy Bertomeu, Suresh Govindaraj, Hai Lu (discussant), Lakshmanan Shivakumar, Jenny Tucker (discussant), Paul Zarowin, and workshop participants from Montclair State University, New York University, Rutgers University, Singapore Management University, Southern Methodist University, St. John’s University, Stony Brook University, University of British Columbia, University of Chile, University of Glasgow, University of Puerto Rico, Baruch-Fordham-Rutgers Accounting Research Symposium, Conference on Financial Economics and Accounting (CFEA), Hawaii Accounting Research Conference (HARC) and Temple University Accounting Conference.
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