Unintended consequences of forecast disaggregation : a multi-period perspective
Document Type
Journal article
Source Publication
Contemporary Accounting Research
Publication Date
Fall 1-1-2017
Volume
34
Issue
3
First Page
1580
Last Page
1595
Publisher
Wiley-Blackwell
Abstract
Prior research finds that investors respond more favorably to a disaggregated earnings forecast than to an aggregated one. The present study examines whether this initial favorable effect on investors’ decisions leads to investors giving management the benefit of the doubt, or backfires in the event of a subsequent earnings surprise announcement. The results of our experiment indicate a “backfire effect” consistent with Expectation Violation Theory. We find that investors’ negative reactions to an earnings surprise are stronger if they first observed a disaggregated forecast than if they first saw an aggregated forecast. The largest downward adjustment in investment interest occurs when the disaggregated forecast is later found to be overstated. This study provides evidence of the complexity of the effect of disaggregated earnings forecast and adds to the literature concerning the costs and benefits of accounting information disaggregation.
DOI
10.1111/1911-3846.12305
Print ISSN
08239150
E-ISSN
19113846
Publisher Statement
Copyright © CAAA. Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Dong, L., Lui, G., & Wong, O. W. B. (2017). Unintended consequences of forecast disaggregation: A multi-period perspective. Contemporary Accounting Research, 34(3), 1580-1595. doi: 10.1111/1911-3846.12305