Aspiration Level Effects: An Empirical Investigation

A sample of 10000 quarterly earnings announcements by publicly held companies listed on the COMPUSTAT and CRSP data bases is examined. Four models from the current accounting literature ar used to generate ‘forecast’ errors for each of these companies. The way in which these forecast errors are valued by the market as a whole is examined. Using this sample, the predictions of theories of aspiration level effects are assessed.