<span style="font-family: Times New Roman; font-size: small;"> </span><p style="margin: 0in 0.5in 0pt; text-align: justify; mso-pagination: none;" class="MsoNormal"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">This study aims at examining 1) whether the market reacts differently in response to the same news, but based on different levels of accuracy from prior earnings forecasts; 2) whether managers tend to maintain or change their reputations for being optimistic or pessimistic in their forecasts; and 3) whether managers manage current earnings numbers in order to maintain or change their reputations for optimistic or pessimistic forecasting. Based on t-tests and the Wilcoxon rank-signed test, it was discovered that the market reacts more positively (negatively) on good (bad) news with a pessimistic (optimistic) prior earnings forecast. Further, when a firm is pessimistic in its forecasts, it tends to stay pessimistic, but when a firm has a reputation for optimistic forecasts, it does not appear to change that reputation. A firm with an optimistic prior forecast is more likely to manage earnings upwards by influencing one of the following: increasing total accruals, boosting inventory levels, or lowering discretionary expenses.</span></span></p><span style="font-family: Times New Roman; font-size: small;"> </span>
Management Earnings Forecast And Earnings Management: Does Prior-Period Forecast Accuracy Play A Role?
