Meeting or Beating Analysts’ Forecasts: Empirical Evidence of Firm’s Characteristics, and Persistence Patterns

Abstract

Focusing on the MBE (meeting or beating analysts’ forecast) phenomenon,this study primarily investigates the way market responds to a firm’s repeated MBE and to its first failure to meet analysts’ forecast after a long string of MBE. The paper also asks whether the market’s reaction to the MBE patterns has changed after the regulatory reform including the Sarbanes-Oxley Act and investigates the properties of habitual MBE firms. The results show the market rewards persistent MBE firms and that it seems to efficiently interpret a systematic portion of earnings surprise for habitual beaters. They also document that the post-SOX stock market premium to MBE has not completely diminished and that MBE patterns are strongly associated with firm characteristics.