The Association between Quarter Length, Forecast Errors, and Firms’ Voluntary Disclosures

Approximately 60% of adjacent fiscal quarters contain a different number of calendar days. Our preliminary results indicate it is important for analysts to adjust for changes in quarter length when making forecasts. However, we find the quarterly change in days is positively associated with analysts' revenue and earnings forecasts errors, which indicates analysts systematically underestimate (overestimate) performance when quarter length increases (decreases). We find evidence indicating investors make similar errors as returns around earnings announcements are positively associated with the change in quarter length. Corroborating these findings, managers are more (less) likely to discuss quarter length during conference calls when quarter length decreases (increases). The results are consistent with managers' strategic disclosure incentives. In summary, our evidence suggests analysts and investors fail to fully take account of the quasi-mechanical effect that quarter length has on firm performance and managers strategically alter their voluntary disclosures to take advantage of these failures