| Summary: | 碩士 === 佛光大學 === 管理學系 === 98 === The surprises resulted from the two incidents the Subprime Mortgage Crisis in the U.S. triggered by the Financial Tsunami (also known as the Financial 911) at the end of 2007 and the 2009 Hurricane devastating the southern Taiwan, later called “Taiwan 88 Flood” , are beyond imagination. Stunned investors often make irrational decisions in investments. André Kostolany, a godfather of speculation, pointed out that only frauds can always buy shares at the lowest point and sell them at the highest, while the most fortunate people cannot do so. There are a host of factors influencing the stock price such as natural disasters, wars, political issues, and internal factors from the market (e.g. transaction costs, legal restrictions, manipulation), and so on.
The main purpose of this study is (1) to investigate categorization of "surprise" as well as how to measure surprises, (2) to understand how and why the company, the analyst, and the broker amend their earnings forecast , (3) to examine if earnings forecast revisions are subject to unexpected earnings (earnings surprise), or unexpected dividends (dividends surprise).
According to the study of literature reviews, the surprise can be divided into two types: one is pre-information, which can be used to predict the purpose of the surprises and their effects could be evaluated by the gaps between the predicted and the performance, such as the effects of the earnings surprise or the dividends surprise; the other does not have any previous information for consultation, and the incident is a sudden event, which never happened before and will hardly happen in the future. The sudden event is termed “surprise,” or, to be more precise, “shock,” for example, the Financial Tsunami (the Finance 911), whose impact on the stock market is much astonishing.
In the multiple regression model of this empirical study, the analyst’s revision of earnings forecast is dependent variable and the independent variable includes unexpected earnings, and the dummy variable of positive earning surprise and negative earning surprise—all of which are analyzed for evidence; however the evidence found shows the major causes for earnings forecast revision, made by the market-oriented or the company-oriented analysts, are unexpected earnings surprise. The interactive effects of the earnings and dividends (positive, negative or expectative) are insignificant.
In addition, are earnings surprise and dividends surprise subject to the same revisions of earning forecast? After the empirical study, the revisions of earnings forecast are much more influenced by earnings surprise than dividends surprises.
My findings do clarify investors’ misconception it is the dividends surprise that influences revisions of earning forecast instead of the earnings surprise. Because some of the company's dividend policy is fixed, the dividend is not paid according to the surplus of the year. Consequently, the dividends surprise is not the primary factor that affects the revision of earnings forecast, but the earnings surprise does.
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