Who is Afraid of Reg FD? The Behavior and Performance of Sell-Side Analysts Following the SEC's Fair Disclosure Rules

Abstract

This paper analyzes the impact of Regulation FD on the accuracy and dispersion of earnings forecasts made by sell-side equity analysts. Using a large sample of forecasts made over a nearly ten-year period surrounding FD's adoption, we uncover two main sets of findings. First, earnings forecasts become less accurate post-FD at the levels of both the individual analyst and the consensus. This effect is significantly larger for early forecasts than for late forecasts, and for smaller companies than for larger companies. Second, the dispersion in earnings forecasts across individual analysts following a company increases post-FD. This effect is also larger for early forecasts than for late forecasts, and it increases with the passage of time following FD's adoption. These results are quite robust to alternative empirical methodologies. Our findings suggest that there has been a reduction in both selective guidance and the quality of analyst forecasts post-FD.