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Asymmetric Market Reactions of Growth and Value Firms with Management Earnings Forecasts

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  • H. Chan
  • R. Faff
  • Y. K. Ho
  • A. Ramsay

Abstract

We study the market reaction of Australian firms issuing management earnings forecasts (MEF). Specifically, we measure and distinguish between the immediate and post‐earnings announcement impact of MEF. Our analysis is conditioned on growth/value characteristics and news surprise and we test for asymmetric effects on these two conditioning variables. We find that the 3‐day returns following non‐routine bad news forecasts are significantly more negative for growth firms than value firms. No significant differences are found for good news forecasts. In the post‐earnings announcement period, both growth and value firms have significant negative post‐earnings announcement drift following non‐routine bad news forecasts but they are not significantly different from each other.

Suggested Citation

  • H. Chan & R. Faff & Y. K. Ho & A. Ramsay, 2006. "Asymmetric Market Reactions of Growth and Value Firms with Management Earnings Forecasts," International Review of Finance, International Review of Finance Ltd., vol. 6(1‐2), pages 79-97, March.
    • Handle: RePEc:bla:irvfin:v:6:y:2006:i:1-2:p:79-97
    DOI: 10.1111/j.1468-2443.2007.00060.x
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    Cited by:

    1. Jamie Alcock & Thomas Mollee & James Wood, 2011. "Volatile earnings growth, the price of earnings and the Value premium," Quantitative Finance, Taylor & Francis Journals, vol. 11(6), pages 805-815.
    2. Hayette Gatfaoui, 2010. "Capital Asset Pricing Model," Post-Print hal-00589904, HAL.
    3. Weihong Xu, 2009. "Evidence That Management Earnings Forecasts Do Not Fully Incorporate Information in Prior Forecast Errors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7-8), pages 822-837.
    4. Weihong Xu, 2009. "Evidence That Management Earnings Forecasts Do Not Fully Incorporate Information in Prior Forecast Errors," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(7‐8), pages 822-837, September.
    5. Haiyan Jiang & Ahsan Habib & Rong Gong, 2015. "Business Cycle and Management Earnings Forecasts," Abacus, Accounting Foundation, University of Sydney, vol. 51(2), pages 279-310, June.

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