Are revenue forecasts rational? Evidence surrounding Reg FD

Abstract

I test the rationality of analysts' revenue forecasts for a sample of value and growth stocks, which have been shown to have different valuation properties in previous research. Using one-quarter-ahead revenue forecasts and actual sales figures in a firm-by-firm and panel setting in the period 1997 to 2007, I find that all revenue forecasts are rational and actually improved after the introduction of regulation fair disclosure, albeit in larger proportion for value stocks.

Notes

¹I/B/E/S started providing revenue forecasts since 1996. The number of forecasted firms was 65 and the number went up to 1000 firms the next year.

²COMPUSTAT data span to December 2007.