The Effect of SFAS No. 141 and SFAS No. 142 on the Accuracy of Financial Analysts' Earnings Forecasts after Mergers Page: 65
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The Reg FD as the Confounding Variable for the Study Results
Several recent academic studies empirically tested the effectiveness of Reg FD
in "field leveling" and its effect on stock market and analysts' forecasts. In particular,
Irani and Karamanou (2003) report a decrease in analyst coverage and an increase in
forecast dispersion following the enactment of Reg FD. Irani and Karamanou (2003)
interpret such study results as evidence of the decreased quantity and quality of publicly
available data in the post-Reg FD information environment.
The increased dispersion in analysts' forecasts in the post-Reg FD period is also
documented by other researchers (Bailey et al. 2003; Mohanram and Sunder 2002).
Although those researchers share Irani and Karamanou's (2003) conclusion about the
decreased quality of public information in the post-Reg FD environment (Straser 2002),
they attribute this phenomenon to the simultaneously increased quantity of this
information (Bailey et al. 2003; Heflin et al. 2003; Eleswarapu et al. 2003; Straser 2002).
In other words, these researchers suggest that Reg FD (1) resulted in a significant
increase in privately inferred information (Barron et al. 2003) and, consequently,
increased disagreement among analysts (Bailey et al. 2003); (2) provided advantages
for market agents more capable in information interpretation (Mohanram and Sunder
2002); (3) did not significantly affect market volatility17 (Eleswarapu et al. 2003; Heflin et
al. 2003; Bailey et al. 2003); and (4) achieved its goal in restricting selective disclosure
(Gintschel and Markov 2003).
Summarily, the empirical evidence on Reg FD's impact on analysts' judgment is
contradictory and suggests that Reg FD might affect some properties of earnings
forecasts. This evidence, however, gives no reasons to believe in different Reg FD65
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Mintchik, Natalia Maksimovna. The Effect of SFAS No. 141 and SFAS No. 142 on the Accuracy of Financial Analysts' Earnings Forecasts after Mergers, dissertation, May 2005; Denton, Texas. (https://digital.library.unt.edu/ark:/67531/metadc4731/m1/72/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; .