An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Anwer Ahmed
Texas A&M University

Minsup Song
University of Idaho

Doug Stevens
Florida State University

Abstract: Theorists have developed models that incorporate differential interpretation of earnings announcements, and recent studies of analysts’ forecasts around earnings announcements support the descriptive validity of these models. We contribute to the literature by examining whether earnings precision and prior information precision affect the differential interpretation of earnings by analysts. We find that Kandel and Pearon’s (1995) proxies for differential interpretation by financial analysts are: 1) negatively related to earnings predictability and persistence measures, 2) positively related to absolute forecast errors and standard deviation of cash flows, and 3) negatively related to market-to-book ratios and membership in high technology industries.

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