Impact of Regulation Fair Disclosure on the Information Quality of Analysts’ Forecasts

Surya N Janakiraman
The University of Texas at Dallas

Suresh Radhakrishnan
The University of Texas at Dallas

Rafal Szwejkowski
The University of Texas at Dallas

Abstract: We examine the impact of Reg FD on two dimensions of analysts’ information quality -- timeliness (relevance) and forecast accuracy (reliability). We classify analysts in to leaders and followers based on the timeliness of their forecasts. We find that Reg FD has adversely impacted the timeliness of the analysts’ forecasts -- the leaders’ timeliness have been impacted much more than the followers’ timeliness. We also find that the forecast accuracy of the leaders has decreased post FD, while the forecast accuracy of the followers has remained unchanged. Overall, these results suggest that information quality has deteriorated after Reg FD. The main implication of our results is that firm guidance to analysts has declined after Reg FD, and suggests that the firm’s guidance to analysts was in the form of interpretive guidance, which cannot be communicated effectively to all analysts. Thus, even though voluntary disclosures could have increased (or remained the same) the interpretive guidance to analysts have adversely impacted the timeliness and the forecast accuracy of the initial forecasts

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