Asymmetric Market Reactions of Growth and Value Firms with Management Earnings Forecasts

Authors: Chan, H.¹; Faff, R.²; Ho, Y. K.³; Ramsay, A.²

Source: International Review of Finance, Volume 6, Numbers 1-2, March/June 2006 , pp. 79-97(19)

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Abstract:

We study the market reaction of Australian firms issuing management earnings forecasts (MEF). Specifically, we measure and distinguish between the immediate and post-earnings announcement impact of MEF. Our analysis is conditioned on growth/value characteristics and news surprise and we test for asymmetric effects on these two conditioning variables. We find that the 3-day returns following non-routine bad news forecasts are significantly more negative for growth firms than value firms. No significant differences are found for good news forecasts. In the post-earnings announcement period, both growth and value firms have significant negative post-earnings announcement drift following non-routine bad news forecasts but they are not significantly different from each other.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-2443.2007.00060.x

Affiliations: 1: Department of Finance, The University of Melbourne, Melbourne, Australia, 2: Department of Accounting and Finance, Monash University, Victoria, Australia 3: Department of Finance and Accounting, National University of Singapore, Singapore

Publication date: 2006-03-01