The Increasing Usefulness of Annual Earnings Announcements: An Examination of Changes in Disagreement Using Analyst Forecasts

Researchers in accounting have recently provided evidence of a striking increase in the usefulness of earnings announcements based on stock market price and volume reactions (Beaver et al., 2018; Barron et al., 2018). Price reactions, however, are unable to capture investor disagreement and volume reactions capture both the resolution of prior disagreement and newfound disagreement generated by earnings announcements. Thus, it remains to be determined if earnings announcements have become increasingly useful in leveling the informational playing field, a key public policy objective of financial reporting. To address this possibility, we examine changes in disagreement around annual earnings announcements over the last forty years using analyst forecast measures found in the literature. First, we show that forecast dispersion is reduced around earnings announcements and this reduction has increased over time. Next, we use a forecast measure of informedness from Barron et al. (1998) to show that analysts as a group are more informed by earnings announcements in recent time periods. Finally, we use Barron et al.’s forecast measure of consensus to show that the ability of earnings announcements to make analysts more commonly informed has increased over time.