Abstract
ABSTRACTThis study investigates the quality and usefulness of analysts’ book value forecasts for financial firms relative to nonfinancial firms. We examine whether forecast properties (accuracy, bias, and dispersion) of book value forecasts and the market reaction to unexpected book value surprises differ between financial and nonfinancial firms. We find that book value forecasts are more accurate, less biased, and less dispersed for financial firms compared to nonfinancial firms. In addition, we show that these results are not simply a result of differences in earnings per share (EPS) forecast quality. We also provide evidence that book value forecasts are incrementally helpful to analysts in forecasting earnings for financial firms. In addition, we find evidence that the stock price drift following an earnings announcement is more pronounced when book value per share (BPS) surprises are considered in addition to EPS surprises. However, this finding only holds for financial firms. We find that this delayed reaction can form the basis for a profitable trading strategy.
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