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

Zheng Wang
University of Maryland - College Park

Abstract: This paper provides strong evidence that analyst recommendation revisions issued subsequent to earnings announcements convey valuable information to the market for reinterpreting previously released earnings information, suggesting that analysts have more expertise in processing pubic information than the market. Also, analysts exhibit differences among themselves in their abilities to interpret public information. Moreover, this source of analysts' expertise diminishes when the complexity of earnings signals increases. Analysts are less able to help the market evaluate earnings information when the information is difficult to analyze. Lastly, Regulation Fair Disclosure (Reg FD) has a significant impact on analysts' information environment. On average, recommendation revisions become less informative about earnings value implication after Reg FD because there is a great increase in the number of revisions issued by analysts whose expertise is not in processing public information.

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