CORPORATE DISCLOSURE POLICY AND ANALYST BEHAVIOR

This paper examines the relations between the disclosure practices of firms, the number of analysts following each firm and properties of th e analysts' earnings forecasts. Using data from the Report of the Fina ncial Analysts Federation Corporate Information Committee (FAF Report 1985-89), we provide evidence that firms with more informative disclos ure policies have a larger analyst following, more accurate analyst ea rnings forecasts, less dispersion among individual analyst forecasts a nd less volatility in forecast revisions. The results enhance our unde rstanding of the role of analysts in capital markets. Further, they su ggest that potential benefits to disclosure include increased investor following, reduced estimation risk and reduced information asymmetry, each of which have been shown to reduce a firm's cost of capital in t heoretical research.