Analysts' earnings forecast revisions and errors in antidumping (AD) petition investigations.

Abstract

Previous assessments of the value of antidumping (AD) petitions have utilized event studies. These estimate the significance of abnormal returns to security holders of the pertinent firms at important decision dates in the AD investigation. However, security holders have varying degrees of information about the prospects for their firm. The present study estimates the significance of earnings forecast revisions and the accuracy of those forecasts around these dates by brokerage firm analysts. Analysts maintain a professional relationship with the firms that they follow. As such, they are assumed to be better informed than the average security holders. Their earnings forecast revisions, accuracy, and bias should provide a superior estimate of the value of the petitions to the pertinent firms. We provide evidence that analysts expect declining performance from pertinent firms in first year earning when the ITC-Preliminary decision turns out to be negative; but possible improvement in second year earning upon learning the Department of Commerce final decision. We provide no evidence that the filing of an AD petition or the announcement of the verdicts of the investigation affects analysts' expectation about firm five year (long-term) earnings growth. Therefore, our finding shows that the AD petition investigations affect analyst's expectations about firm performance on a short-term basis. We also find that analysts may anticipate their second year earnings forecast three months and one month before the filing date. When we examine analysts' forecast errors in the year following the filing of AD petitions, we find no evidence that the filing of an AD petition affects analysts' forecast accuracy or bias.