Does other information improve the usefulness of management earnings forecasts

Prior literature presents mixed evidence on whether managers can elicit a stronger market response to management earnings forecasts by including other forward looking information. There is little evidence to date on whether we should expect, a priori, a larger price change following a forecast that includes other information. I investigate three possible explanations. I posit that managers may be including other information with very surprising forecasts in order to corroborate exceptional news; however, I find no evidence to support this. Second, the disclosure of additional information with the forecast might signal a forecast of high accuracy or low bias, thus precipitating a stronger market response per unit of forecast surprise. I find no evidence of higher accuracy, but some evidence of reduced bias when forecast surprise is large and the news in the forecast is good. The real explanation appears to lie with information intermediaries. I predict and find that management forecasts with other information are more useful to analysts. I find that analysts make larger forecast revisions when other information is included with a management forecast and that subsequent analysts' forecasts are more accurate and less dispersed. Through the filter of analysts, the other information included with management forecasts of earnings gives market participants more accurate and consistent information about the future prospects of the firm.