Does it Pay to Consistently Meet Analysts' Earnings Expectations?

Abstract

In this paper, we investigate the market reward to firms that consistently meet or exceed analysts' consensus forecasts over the entire horizon over which a pattern of consistent meet/beat is exhibited. Our results support the existence of a positive market response over the entire horizon. We document that this incremental valuation premium increases with the length of the strategy horizon over which MEET behavior persists, and that MEET firms enjoy significantly higher valuations of income and book value of equity than do NONMEET firms. Finally, we document that there has been a temporal shift in the way the market values the MEET strategy in that there is greater premium (penalty) for meeting /beating (missing) of earnings expectations.

Keywords: Analysts, Earnings Forecasts, Valuation, Expectation Management, Earnings Management, Self-selection

JEL Classification: G14, G14, G29, M41