Browsing by Author "Seethamraju, Chandra"
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Item Analysts’ Long-Horizon Earnings Forecast Properties and Long-Horizon Macroeconomic Forecast Optimism(2016-03) Pevzner, Mikhail; Radhakrishnan, Suresh; Seethamraju, ChandraWe examine whether the properties of earnings forecasts – bias and dispersion are different across periods when macroeconomic forecasts are optimistic than non-optimistic, and whether this difference in analyst forecast optimism is stronger during recessionary periods. We find that the long-horizon earnings forecasts are more optimistically biased in periods when the macroeconomic forecasts are optimistically biased as well, and the bias is more pronounced during periods of recession. We also find that the long-horizon earnings forecast dispersion is lower in periods when the long-horizon macroeconomic forecasts are optimistic than in other periods; and this difference is attenuated during recessionary periods. These results suggest that firms that meet or beat earnings forecasts when there is no recession and macroeconomic forecast is optimistic are likely to have opportunistically biased their long-term forecasts and walked them down, i.e. opportunistic; and that firms that meet or beat earnings forecasts when there is recession and macroeconomic forecast is optimistic are likely to be the ones that are positioned to perform well when the economy recovers. Consistent with this we find that premium for meeting or beating the analysts’ earnings forecasts is highest in periods when there is recession and macroeconomic forecasts are optimistic; and there is no premium when there is no recession and macroeconomic forecast is optimistic. Collectively, the results show the interaction between the macroeconomic outlook and firm-level forecast properties.Item Firms' Inventory Choices During the Great Recession(SSRN, 2014) Gupta, Mahendra; Pevzner, Mikhail; Seethamraju, ChandraWe study how the interplay between firms’ fixed cost structure and their initial inventory levels influences these firms’ inventory production decisions. We also examine the consequences of those decisions for the firms’ accounting and stock performance during the 2008-09 recession (hereafter “the recession”). In particular, we examine the interaction of firms’ initial inventory levels and fixed production costs structure during the recession and how that interaction: 1) impacts firms’ contemporaneous and subsequent inventory changes; 2) affects contemporaneous and future accounting performance; 3) affects analysts’ expectations of future earnings, and 4) is perceived by the stock market. We find that firms with high fixed production costs and high initial inventories reduce their inventories more substantially than other firms both in 2008 and 2009. These firms take a greater hit to their earnings in 2009 as a result of those cuts. We also find that such firms tend to increase their inventories in 2010 and their earnings improve substantially relative to other firms. This result is consistent with the notion that firms undertake excessive inventory production decreases during recessions, and then take advantage of those production decreases as the recession ends. Financial analysts appear to anticipate this improvement in earnings and incorporate this information in their forecasts. Consistent with this, the stock market reacts favorably to the actions that firms took with respect to their inventories.Item The Implications of Absorption Cost Accounting and Production Decisions for Future Firm Performance and Valuation(Wiley, 2010) Gupta, Mahendra; Seethamraju, Chandra; Pevzner, MikhailWe examine how inventory overproduction among high fixed costs firms affects these firms’ contemporaneous and future accounting performance, and how financial analysts and the stock market incorporate implications of these relations in their reactions. We find that higher fixed costs firms engaging in opportunistic overproduction are able to increase their contemporaneous return on assets (ROAs), but only those higher fixed costs firms that also experience inventory increases, sales declines, and issue common stock also experience declines in their future accounting performance. We further find that financial analysts are aware of this phenomenon and appropriately reduce their forecasts of future earnings per share (EPS) for higher fixed costs firms that experience sales declines and inventory increases. In general, we do not find that the stock market penalizes such opportunistic overproduction.