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Price Reactions to Management Earnings Forecasts: The Incremental Effect of Managements’ Prior Forecasting Reputation
Rowland K. Atiase, The University of Texas at Austin
S. Supattarakul, Thammasat University
Senyo Tse, Texas A & M University
ABSTRACT. We examine the incremental effect of firms’ prior forecasting reputation on price reactions to management earnings forecast news. We find that firms’ prior forecasting reputation has a positive incremental effect on price reactions to management earnings forecast news. This suggests that firms acquire a forecasting reputation among market investors which affects return reactions to subsequent management earnings forecasts. Next, we find that the incremental effect of prior forecasting reputation on price reactions is significantly positive for both bad and good prior management forecast news. Finally, we find that the incremental effect of managements’ prior forecasting reputation on returns is significantly positive for current bad news firms for both bad and good prior news. For current good news firms however, the significantly positive incremental effect of managements’ prior forecasting reputation on returns is largely confined to firms with prior good news management forecasts.
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