Does Reg FD work? Evidence from Analysts’ Earnings Forecasts on Sin Stocks

This paper provides the evidence on the impact of Regulation Fair Disclosure (RFD) on analysts’ forecasts bias on sin stocks. I measure analyst forecast bias as the difference between the consensus earnings forecast and the actual earnings, scaled by the stock price. I find a positive association between the level of forecast optimism and sin firm membership, in the Post-RFD period, and no significant association in the Pre-RFD period. Regulation FD increases sin firms’ optimistic forecast bias. These results imply that analysts tend to issue over-optimistic earnings forecasts on sin stocks in the Post-RFD period, but not in Pre-RFD period. Regulation FD may deteriorate information environment of sin firms.