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Improvement in clinical trial disclosures and analysts’ forecast accuracy: evidence from the pharmaceutical industry

Author

Listed:
  • Maggie Hao

    (University of Houston Clear Lake)

  • Dana A. Forgione

    (University of Texas at San Antonio)

  • Liang Guo

    (California State University, San Bernardino)

  • Hongxian Zhang

    (Missouri University of Science and Technology)

Abstract

This paper examines whether financial analysts use the information contained in clinical trial disclosures to improve their forecast accuracy for pharmaceutical companies. Findings indicate that the improved clinical trial disclosures due to a quasi-regulation issued by the International Committee of Medical Journal Editors (ICMJE) significantly reduce analysts’ long-term forecast error. In addition, a propensity-score matching analysis provides additional strong evidence that issuance of the 2005 ICMJE’s regulation is accompanied by an average 45 % decrease in long-term forecast error, and a more than 50 % decrease in long-term forecast dispersion. This study contributes to the accounting literature regarding nonfinancial disclosures by providing the first insights into financial analysts’ use of clinical trial disclosures in their forecasts of future earnings. In addition, because the major event examined in this study is a quasi-regulation issued by the ICMJE, we provide additional insights on the effectiveness of industry-initiated regulations (or quasi-regulations) on nonfinancial disclosure practice.

Suggested Citation

  • Maggie Hao & Dana A. Forgione & Liang Guo & Hongxian Zhang, 2017. "Improvement in clinical trial disclosures and analysts’ forecast accuracy: evidence from the pharmaceutical industry," Review of Quantitative Finance and Accounting, Springer, vol. 49(3), pages 785-810, October.
    • Handle: RePEc:kap:rqfnac:v:49:y:2017:i:3:d:10.1007_s11156-016-0608-7
    DOI: 10.1007/s11156-016-0608-7
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    More about this item

    Keywords

    Non-financial disclosure; Analyst forecast accuracy; Clinical trial disclosures; Pharmaceutical companies;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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