Private Information Acquisition following Earnings Announcements? An Empirical Analysis

Abstract

We examine analysts' forecasts following quarterly earnings announcements to assess whether such announcements trigger analysts to acquire private information about upcoming annual earnings. Prior research finds decreases in analysts' consensus after earnings announcements and concludes that earnings announcements lead analysts to acquire private information about annual earnings. However, we find that forecasts immediately following earnings announcements contain little private information and that the decreases in consensus are driven by analysts' use of public information. Our results are consistent with mandatory earnings announcements resolving analysts' uncertainty of forecasting earnings as opposed to triggering analysts' private information acquisition. Our study highlights the importance of controlling for alternative interpretations of specific analysts' consensus measure in future research.