What Information Matters to Investors at Different Stages of a Firm's Life Cycle?

We examine the role of reported accounting information (e.g., earnings and book values) relative to analysts' earnings forecasts to determine what information is most relevant for explaining market value conditional on a firm's life cycle stage. Using the life cycle measure developed in Dickinson (2011), we find that accounting information and analysts' earnings forecasts are each informative for market values, but in differing ways conditional on a firm's life cycle stage. In both returns and price specifications, we find that for growth and mature firms, investors put relatively more weight on analysts' forecasts. Conversely, for introduction and decline firms, investors find accounting information more relevant for stock price and stock returns. However, consistent with Burgstahler and Dichev (1997), we find that book values are more relevant than earnings for firms that are more likely to exercise an abandonment option (i.e., introduction and decline firms). Overall, our findings are also consistent with our predictions derived from a simple learning model by Pastor and Veronesi (2009).