Does Meeting Earnings Expectations Matter by Kasznik and McNichols – Article Example
The paper "Does Meeting Earnings Expectations Matter by Kasznik and McNichols" is a delightful example of an article on marketing. In other previous researches, it was proven that share price responds positively when companies meet analysts’ earnings forecast and vice versa, it has however not been discussed whether such response is as a result of the firms’ performance on meeting expectation or simply reflects the current earning information. Kaszniko and McNichol (2002) examined whether there is a reward for meeting earnings expectations. Their research found out that: There needs to be control information for the current period of earnings. Firms that meet earnings expectations were found to receive a higher market valuation than those that failed to meet the expectations. Firms that meet the earnings expectations were found to enjoy an increase in earnings in the future. Analysts forecast were not higher for the firms that meet the expectations than for those that don’t. Investors were found to anticipate that there will be higher future earnings for companies that meet expectations, therefore, the increase in valuation for those company`s valuation. Share prices were higher for those companies that met analyst`s expectations than for those that didn’t. This research reveals that the market rewards firms that meet expectations. This will only reflect in a market premium after controlling of analysts' expectations on future earnings. It also suggests that analysts’ future earnings forecasts generally fail to reflect the implications of meeting expectation on future earnings. The increase in value was found to be due to the fact that investors are inclined towards businesses that meet analyst`s expectations. Business underwriters should strive to ensure that they do not increase the valuation of a business after it meets one year`s expectations. From the research, it is clear that there will be a trend in the subsequent years after this happens. With this information, businesses should strive to meet the analyst`s expectations as they will surge in value by meeting it. This will also increase their chances of meeting the subsequent analyst expectations in the following years.