Journal of Business Finance & Accounting, 33(5) & (6), 767–792, June/July 2006, 0306-686X doi: 10.1111/j.1468-5957.2006.00020.x The Effect of the Private Securities Litigation Reform Act on Analyst Forecast Properties: The Impact of Firm Size and Growth Opportunities Sidney Leung and Bin Srinidhi ∗ Abstract: We provide evidence that the effect of the Private Securities Litigation Reform Act (the Act) of 1995 on analyst forecast properties is conditional on firm size and growth opportunities. We show that analyst coverage, frequency of forecast revisions, forecast errors and dispersion after the Act decreased for large firms and for firms with low growth opportunities but increased for small firms and for firms with high growth opportunities. These results are consistent with the hypothesis that the Act results in additional high quality disclosures in large firms, which face higher litigation risk and tighter scrutiny from investors but not in smaller firms. Our findings of increases in analyst coverage and revision but deterioration in accuracy and precision of analyst forecasts for firms with high growth opportunities after the Act suggest that in spite of increased corporate disclosures, the information environment for analysts deteriorated in those firms. Keywords: analyst forecasts, Private Securities Litigation Reform Act, disclosures, forecast errors, forecast dispersion, coverage, revision frequency 1. INTRODUCTION In December 1995, the US Congress enacted the Private Securities Litigation Reform Act of 1995 (the Act), which increases restrictions on private litigation to sue for investment losses from securities fraud. Furthermore, the Act provides firms a safe harbor from liability for forward-looking disclosures on projected ∗ The authors are respectively from the Department of Accountancy, City University of Hong Kong; and the Department of Accounting and Law, University at Albany, New York and the Department of Accounting, Hong Kong Polytechnic University. They gratefully acknowledge the suggestions and comments made on earlier versions of this paper by Professors Ferdinand Gul, Bikki Jaggi, Judy Tsui and Jere Frances. They also acknowledge the comments made during presentations at the City University of Hong Kong, University of Sydney and Hong Kong University of Science and Technology. All data used in this paper are available from public databases. (Paper received April 2004 revised version accepted May 2005) Address for correspondence: Bin Srinidhi, Department of Accounting and Law, University at Albany, 1400 Washington Avenue, Albany, NY 12222, USA. e-mail: bin.srinidhi@gmail.com C  2006 The Authors Journal compilation C  2006 Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA. 767