Corporate Disclosure Quality and Properties of Analysts’ Information Environment

This study examines how the quality of corporate disclosures impacts the precision of information that financial analysts incorporate into their fore-casts of annual earnings. Our empirical measures distinguish between individual analysts ’ common and idiosyncratic (uniquely private) infor-mation precision, and between the quality of firms ’ public disclosures and the quality of their private communications with analysts. We find that higher quality disclosures increase the precision of analysts ’ common and idiosyncratic information. Further, we find that ’ the increased precision of analysts ’ idiosyncratic information is primarily due to higher quality an-nual and quarterly accounting-related disclosures, publicly available to all investors. These results suggest that higher-quality public information better enables analysts to generate idiosyncratic insights. We find no ev-idence to suggest that the quality of analysts ’ private communications with management impacts analysts ’ information precision after controlling for the quality of publicly available accounting information. In sum, the re-sults suggest that when forming their annual earnings forecasts, analysts rely more heavily on publicly available financial data rather than privi-leged communications with management. 1