The Roles of Data Providers and Analysts in the Production, Dissemination, and Pricing of Street Earnings

Abstract

In September 2009, Thomson Reuters (TR) discontinued its practice of relying on analysts to determine the treatment of unexpected charges and gains in favor of their immediate exclusion from GAAP earnings. Adopting a difference-in-differences approach, we show that this plausibly exogenous change in TR's methodology resulted in street earnings that are more predictive of future performance; and timelier, more accurate, and less dispersed analyst forecasts of future earnings, consistent with TR enhancing the properties of street earnings and analyst forecasts. Finally, using path analysis we show that a significant portion of TR's effect on price discovery is through its effect on analysts; and that the change in TR's treatment of unexpected items increased (decreased) the relative influence of TR (analysts) on the pricing of street earnings. We conclude that forecast data providers like TR are more than a conduit of information from analysts to investors.