To Forecast or Not: Biases and Spillover Effects of Management Forecasts on Firms' Operating Actions and Earnings Reports
Management earnings forecasts (MEF) are a form of voluntary disclosure. MEF are distinct from "ordinary" voluntary disclosures because MEF have spillover effects on both managers' subsequent operating decisions and their earnings reporting choices. Managers who do (resp., don't) forecast choose greater (resp., less) than first-best operating actions. Managers who do forecast engage in more earnings management than managers who don't. We explain which managers issue MEF. Managers who issue MEF tend to issue biased forecasts, with the extent of their bias depending on whether the bias is measured with respected to their firms' expected economic earnings or expected reported earnings.
Ronald A. Dye, Swaminathan Sridharan
Dye, Ronald A., and Swaminathan Sridharan. 2022. To Forecast or Not: Biases and Spillover Effects of Management Forecasts on Firms' Operating Actions and Earnings Reports.