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.

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

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