Interpreting corporate earnings announcements, understanding earnings revisions and earnings surprises is key to accurately tracking investment performance. Analysts, Lies and Statistics is the first comprehensive guide examining the process of issuing corporate earnings announcements and pre-announcements. Do financial managers and analysts mediate corporate earnings announcements, and what conflicts of interests can affect the release of corporate information? This timely book will ensure all investors understand the quality and veracity of earnings information and help them make the right investment decisions. :
Interpreting corporate earnings announcements, understanding earnings revisions and earnings surprises is key to accurately tracking investment performance. Analysts, Lies and Statistics is the first comprehensive guide examining the process of issuing corporate earnings announcements and pre-announcements. Do financial managers and analysts mediate corporate earnings announcements, and what conflicts of interests can affect the release of corporate information?
Chapters include:
• Integrating earnings estimates into a portfolio management strategy • Analysts’ conflicts of interest • Whisper estimates • Earnings revisions • Earnings surprise • Earnings management • Forecasts of long-term earnings growth, target prices, and stock recommendations • Non-GAAP measures of earnings • Accruals and earnings quality
This timely book will ensure all investors understand the quality and veracity of earnings information and help them make the right investment decisions.
Published: Dec-03
Table of Contents
Analysts, Lies, and Statistics Cutting Through the Hype in Corporate Earnings Announcements
Table of Contents
About the authors
Preface
Chapter 1: Introduction
Chapter 2: The history of earnings estimates Changes in the timeliness of information Estimate revision process: 1980s Estimate revision process: 1996 and beyond Summary
Chapter 3: The role of analysts Buy and sell recommendations The analyst cycle and the critical role of analysts The analyst conflict of interest Analyst information flow The changing nature of analyst estimates Effect of pro forma versus GAAP earnings on the investor Earnings forecast quality Summary
Chapter 4: Analysts’ conflicts of interest A brief history What are the conflicts? Academic evidence Movements towards combating conflicts of interest Summary
Chapter 5: Forecasts of long-term earnings growth, target prices, and stock recommendations Long-term earnings growth Stock recommendations Target prices The relation between long-term growth forecasts, recommendations, and target price forecasts Summary
Chapter 6: Non-GAAP measures of earnings Anecdotal evidence Academic evidence Documentation of the phenomenon Conjectures on the cause of the phenomenon Discussion of the pros and cons Summary
Chapter 7: Earnings management What is earnings management? Why would a manager manipulate earnings? Is earnings management bad? Detecting and measuring earnings management Nondiscretionary and discretionary accounting accruals Evidence Observed earnings distributions What is the effect of pre-announcements? Summary
Chapter 8: Accruals and earnings quality The link between earnings and cash flows Accruals versus cash flows Accounting numbers as a measure of performance Accruals are sometimes not so good Where to look Accruals and earnings behaviour The market seems to under-appreciate accruals, but do analysts? Summary
Chapter 9: Whisper estimates What are whisper numbers? Where do whisper number providers get their data? Do academic studies support whisper estimates: supporting evidence Do academic studies support whisper estimates: evidence to the contrary Conclusion
Chapter 10: Are there superior analysts? Anecdotal evidence The evidence What has the research shown? Summary
Chapter 11: Earnings revisions Analysts’ estimate revisions explain price changes Analyst’s estimates form trends Earnings revision model Will analyst revisions continue to work? Summary
Chapter 12: Earnings surprise History Measurement issues Earning abnormal returns from earnings surprises Factors affecting the strength of the earnings surprise-stock return relationship Ancillary relationships Pitfalls in relying on the earnings surprise–stock price relationship International applications Portfolio construction issues Summary
Chapter 13: Integrating earnings estimates into a portfolio management strategy Four key small cap extremes: extreme data, extreme price, extreme value, and extreme debt Extreme data: when lack of data is informational Extreme price: low price, bad news Extreme value: cheap for a reason Extreme debt: debt as a proxy for confidence Putting it all together Summary
Chapter 14: Conclusion
Authors
Analysts, Lies, and Statistics Cutting Through the Hype in Corporate Earnings Announcements
About the authors
Brian R. Bruce is Director and Head of Equity Investments at PanAgora Asset Management. Brian is responsible for the research and management of the global active equity strategies at PanAgora. He is also a member of the firm’s Management and Investment Committees. In addition, Brian is Visiting Professor of Investments at Baylor University. Prior to joining PanAgora, Brian simultaneously served as a Professor at Southern Methodist University’s Cox Business School, and as President and Chief Investment Officer of Intercoast Capital, a subsidiary of a Fortune 500 energy company. Brian previously worked at State Street Global Advisors, the Northern Trust Company, and Stein Roe & Farnham.
Brian received a MBA from the University of Chicago, a MS in Computer Science from DePaul University, and a BS in Business Administration from Illinois State University. Brian is a member of the Illinois State University College of Business Hall of Fame, and is a winner of the University of Chicago Graduate School of Business CEO Award. He has published numerous scholarly articles and books, and is the Editor-in-Chief of Institutional Investor’s Journal of Investing. Brian frequently appears in the media, including being interviewed by NBC, ABC, CNBC, the Wall Street Journal, the Washington Post, the New York Times, the Financial Times, Business Week, Associated Press, Reuters, and Bloomberg.
Mark T. Bradshaw is Assistant Professor at Harvard Business School, Harvard University. Mark recently joined the faculty as an Assistant Professor of Business Administration in the Accounting and Control Area. He teaches the first-year MBA course, Financial Reporting and Control. His research investigates how capital market intermediaries process financial statement data into forecasts of future earnings, derive current valuations, and generate investment recommendations.
Professor Bradshaw received his PhD from the University of Michigan Business School (Ann Arbor, Michigan) in 2000, and BBA and MAcc degrees from the University of Georgia (Athens, Georgia) in 1989 and 1995. He is a Certified Public Accountant, and previously worked for Arthur Andersen & Co. in the attestation services division of their Atlanta office from 1988 to 1994. While there, he specialized in publicly traded companies including Delta Air Lines, Continental Airlines, and The Southern Company, and private enterprises, including the Augusta National Golf Club, The Masters Golf Tournament, and the Institute of Nuclear Power Operators.
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