Improvement in Clinical Trial Disclosures and Analysts' Forecast Accuracy: Evidence from the Pharmaceutical Industry
Abstract
This paper examines whether financial analysts use the information contained in clinical trial disclosures to improve their forecast accuracy for pharmaceutical companies. Findings indicate that the improved clinical trial disclosures due to a quasi-regulation issued by the International Committee of Medical Journal Editors (ICMJE) significantly reduce analysts' long-term forecast error. In addition, a propensity-score matching analysis provides additional strong evidence that issuance of the 2005 ICMJE's regulation is accompanied by an average 45 % decrease in long-term forecast error, and a more than 50 % decrease in long-term forecast dispersion. This study contributes to the accounting literature regarding nonfinancial disclosures by providing the first insights into financial analysts' use of clinical trial disclosures in their forecasts of future earnings. In addition, because the major event examined in this study is a quasi-regulation issued by the ICMJE, we provide additional insights on the effectiveness of industry-initiated regulations (or quasi-regulations) on nonfinancial disclosure practice.
Recommended Citation
Hao, M., Forgione, D. A., Guo, L., & Zhang, H. (2017). Improvement in Clinical Trial Disclosures and Analysts' Forecast Accuracy: Evidence from the Pharmaceutical Industry. Review of Quantitative Finance and Accounting, 49(3), pp. 785-810. Springer Verlag.
The definitive version is available at https://doi.org/10.1007/s11156-016-0608-7
Department(s)
Business and Information Technology
Keywords and Phrases
Analyst forecast accuracy; Clinical trial disclosures; Non-financial disclosure; Pharmaceutical companies
International Standard Serial Number (ISSN)
0924-865X
Document Type
Article - Journal
Document Version
Citation
File Type
text
Language(s)
English
Rights
© 2017 Springer Verlag, All rights reserved.
Publication Date
01 Oct 2017
