Seasoned Equity Offerings and Analyst Earnings Forecasts

Abstract

The main purpose of this paper is to examine analyst annual earnings forecast accuracy and dispersion for firms undertaking seasoned equity offerings (SEOs). Specifically, we evaluate the difference in accuracy between newly and previously underwriting-affiliated analysts when there is a change in the lead underwriter for an SEO. We also study the changes of forecast dispersion surrounding the filing of SEOs. Our sample includes all SEOs with identifiable previous and current lead underwriters during the 2003-2007 period along with information about the firm and analyst characteristics. We relate forecast accuracy to analyst characteristics and to whether an affiliated analyst is from a new underwriter. We find newly affiliated analysts are overall more accurate. We attribute this result to newly affiliated analysts' superior information about the issuer firms. Finally, we find that dispersion (measured conventionally or by a measure that purges the analysts' personal effects) decreases long before the SEO filing and continues to decline until the filing date. This result indicates that either the SEO is associated with a large quantity of voluntary disclosure before the filing of the SEO earnings management makes information more obscure after the SEO, or both.