An examination of the differential impact of Regulation FD on analysts' forecast accuracy

Abstract

The stated intent of Regulation FD was to create a level playing field between all market participants by requiring publicly traded companies to widely and publicly disseminate all material information. By restricting selective pre-earnings announcement guidance to analysts, there is now equal access to company-specific information not only between the general investing public and analysts but also between competing analysts. I examine the differential impact of the regulation on the forecast accuracy of superior, average, and inferior analysts. I find that the forecast accuracy has declined for each group and that on a relative basis, inferior (superior) analysts performance has improved (deteriorated) subsequent to the implementation of Regulation FD. My findings suggest that selective guidance provides some explanation for the differential forecasting ability of analysts prior to the implementation of Regulation FD. I also examine the impact of Regulation FD on the ability of a model to forecast which analysts will be the most accurate with their earnings forecast estimates. I find that since Regulation FD has been implemented these models have increased their ability to predict which analysts will make the most accurate forecasts.