How do financial analysts interpret industrial firms' corporate refocusing announcements? |
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| Institution: | 1. University of the West of Scotland and University of Winchester, Accounting, Finance and Law, Business School, University of the West of Scotland, Ayr Campus, Ayr KA8 0SX, United Kingdom;2. Business School, University of Winchester, Winchester SO22 4NR, United Kingdom;1. Bangor Business School, University of Bangor, Bangor, Gwynedd, LL57 2DG, UK;2. Hull University Business School, University of Hull, Hull, HU6 7RX, UK;1. Norwich Business School, University of East Anglia, NR4 7TJ, UK;2. Bangor Business School, Bangor University, LL57 2DG, UK |
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| Abstract: | This study investigates how analysts perceive the effect of corporate refocusing announcements on UK industrial firms' future earnings by examining current-year and one-year-ahead earnings forecast revisions, current-year target price revisions and earnings forecast errors in the five years surrounding a refocusing announcement year. The results reveal that analysts adjust their earnings forecasts downward in a refocusing announcement year and the following two years, predicting that operating performance in the post-refocusing period is likely to decline relative to their former earnings forecasts. Secondly, there is no evidence that analysts issue biased earnings forecasts after refocusing announcements or that their forecasts appear less accurate. Thirdly, they adjust their earnings forecasts downward in a refocusing announcement year with downward market movement. However, they do not similarly adjust their earnings forecast upward with upward market movement. The magnitude of downward adjustments exceeds that of upward adjustments. They also adjust current-year target price forecasts downward with downward market movement in the year prior to a refocusing announcement. |
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| Keywords: | Corporate refocusing activities Earnings forecast revisions Target price revisions Forecast errors G14 G34 M40 |
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