The effect of reporting restructuring charges on analysts’ forecast revisions and errors

• Published in: Journal of accounting & economics Vol. 27; no. 3; pp. 261 - 284
• Main Authors: Chaney, Paul K., Hogan, Chris E., Jeter, Debra C.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01-06-1999; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Accounting and Economics
• Subjects: Accounting; Analysts’ forecast errors; Analysts’ forecast revisions; Corporate reorganization; Errors; Financial analysis; Forecasts; Impact analysis; Mathematical economics; Profitability; Regression analysis; Restructuring charges; Revisions; Structural change; Studies; United States > US; Analysts’ forecast errors; M41; G14; Analysts’ forecast revisions; Restructuring charges
• ISSN: 0165-4101; 1879-1980
• DOI: 10.1016/S0165-4101(99)00012-9

The frequency and magnitude of restructuring charges have drawn the attention of various groups of users of accounting information. Prior studies on restructuring charges have focused on the market's response to the announcement of the charge. In contrast, we examine the charges from the perspective of financial analysts. We provide evidence that analysts expect declining performance for restructuring firms in the short run but possible improvement over the longer term. When we examine forecast errors in the year following the charge, we find evidence that the analysts’ accuracy has declined and, despite the downward revision, analysts are still optimistically biased.