Management Earnings Forecasts: A Review and Framework

2008 ◽  
Vol 22 (3) ◽  
pp. 315-338 ◽  
Author(s):  
D. Eric Hirst ◽  
Lisa Koonce ◽  
Shankar Venkataraman
Keyword(s):  
Empirical Research ◽  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Current Period ◽  
Management Earnings Forecast ◽  
Potential Interactions ◽  
View Management ◽  
Three Components

SYNOPSIS: In this paper, we provide a framework in which to view management earnings forecasts. Specifically, we categorize earnings forecasts as having three components—antecedents, characteristics, and consequences—that roughly correspond to the timeline associated with an earnings forecast. By evaluating management earnings forecast research within the context of this framework, we render three conclusions. First, forecast characteristics appear to be the least understood component of earnings forecasts—both in terms of theory and empirical research—even though it is the component over which managers have the most control. Second, much of the prior research focuses on how one forecast antecedent or characteristic influences forecast consequences and does not study potential interactions among the three components. Third, much of the prior research ignores the iterative nature of management earnings forecasts—that is, forecast consequences of the current period influence antecedents and chosen characteristics in subsequent periods. Implications for researchers, educators, managers, investors, and regulators are provided.

scholarly journals Corporate ownership structure and management earnings forecast

2007 ◽  
Vol 4 (3) ◽  
pp. 247-250
Author(s):  
Toshihiro Umezawa ◽  
Ujo Goto
Keyword(s):  
Financial Reporting ◽  
Ownership Structure ◽  
Financial Institution ◽  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Corporate Ownership ◽  
Management Earnings Forecasts ◽  
Management Earnings Forecast ◽  
Financial Disclosures ◽  
Corporate Ownership Structure

The purpose of this paper is to examine how the structure of corporate ownership impacts the accuracy of management earning forecasts in Japan. An evaluation of the financial reporting reform from 2000 is also presented. As a result, corporate ownership structure variables, such as managerial ownership, financial institution ownership, foreign investment ownership and corporation ownership, are negatively associated with the accuracy of management earnings forecast. We find that corporate ownership structure makes the manager announce more accurate management earnings forecasts. In addition, the reform of financial reporting system in 2000 has an influence on the quality of financial disclosures

The Effect of Legal Environment on Voluntary Disclosure: Evidence from Management Earnings Forecasts Issued in U.S. and Canadian Markets

2002 ◽  
Vol 77 (1) ◽  
pp. 25-50 ◽  
Author(s):  
Stephen P. Baginski ◽  
John M. Hassell ◽  
Michael D. Kimbrough
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
The United States ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Partial Explanation ◽  
Business Environments ◽  
Management Earnings Forecast ◽  
Interim Earnings ◽  
The U.S

Citing fear of legal liability as a partial explanation, prior research documents (1) managers' reluctance to voluntarily disclose management earnings forecasts, and (2) greater forecast disclosure frequencies in periods of bad news. We provide evidence on how management earnings forecast disclosure differs between the United States (U.S.) and Canada, two otherwise similar business environments with different legal regimes. Canadian securities laws and judicial interpretations create a far less litigious environment than exists in the U.S. We find a greater frequency of management earnings forecast disclosure in Canada relative to the U.S. Further, although U.S. managers are relatively more likely to issue forecasts during interim periods in which earnings decrease, Canadian managers do not exhibit that tendency. Instead, Canadian managers issue more forecasts when earnings are increasing, and their forecasts are of annual rather than interim earnings. Also consistent with a less litigious environment, Canadian managers issue more precise and longer-term forecasts. These findings hold after controlling for other determinants of management earnings forecast disclosure that might differ between the two countries—firm size, earnings volatility, information asymmetry, growth, capitalization rates, and membership in high-technology and regulated industries.

Societal Trust and Management Earnings Forecasts

2020 ◽  
Vol 95 (5) ◽  
pp. 149-184 ◽  
Author(s):  
Yuyan Guan ◽  
Gerald J. Lobo ◽  
Albert Tsang ◽  
Xiangang Xin
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Voluntary Disclosures ◽  
Firm Level ◽  
Country Level ◽  
Management Earnings Forecast ◽  
Credible Information ◽  
The Relationship

ABSTRACT We investigate the relationship between societal trust and managers' decisions to voluntarily issue earnings forecasts. We reason that managers are more likely to issue earnings forecasts in high-trust countries than in low-trust countries because investors view these voluntary disclosures as more credible information about the firm's future profitability. We find evidence consistent with these predictions, suggesting that societal trust fosters corporate voluntary disclosure. We also document that societal trust works as a substitute for country-level formal institutions in terms of its implications for management earnings forecast (MEF) issuance. Additionally, we find a stronger relationship between firm-level commitment to credible disclosure and MEFs in low-trust countries, suggesting that country-level societal trust relates to the effectiveness of firm-level credibility-enhancing mechanisms. Finally, we show that firms from countries with higher societal trust issue more precise and accurate MEFs that contain more information about multiple items.

Stickiness in Costs and Voluntary Disclosures: Evidence from Management Earnings Forecasts

2017 ◽  
Vol 30 (3) ◽  
pp. 211-234 ◽  
Author(s):  
Mustafa Ciftci ◽  
Feras M. Salama
Keyword(s):  
Earnings Forecasts ◽  
Positive Association ◽  
Job Security ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Management Earnings Forecasts ◽  
Voluntary Disclosures ◽  
Management Earnings Forecast ◽  
The Relationship ◽  
Cost Stickiness

ABSTRACT We investigate the relationship between cost stickiness and management earnings forecasts. Prior research suggests that earnings are more volatile for sticky cost firms resulting in greater earnings forecast errors. The greater forecast errors might increase investors' demand for information and induce managers to issue earnings forecasts. Alternatively, managers might refrain from issuing earnings forecasts for sticky cost firms because greater forecast errors might damage managers' credibility and adversely affect their job security. We find that cost stickiness is positively associated with management earnings forecast issuance, suggesting that the benefits outweigh the costs. Prior research also suggests that cost stickiness has negative implications for earnings. We find a positive association between cost stickiness and management earnings forecast errors, suggesting that managers do not fully incorporate the negative implications of cost stickiness into their forecasts. Finally, we find that analysts' forecast errors for sticky cost firms are greater than managers'. JEL Classifications: M41; M46; G12.

The Association between Management Earnings Forecast Errors and Accruals

2009 ◽  
Vol 84 (2) ◽  
pp. 497-530 ◽  
Author(s):  
Guojin Gong ◽  
Laura Yue Li ◽  
Hong Xie
Keyword(s):  
Earnings Forecasts ◽  
Positive Association ◽  
Business Environment ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
Management Forecasts ◽  
Management Earnings Forecasts ◽  
Operating Environment ◽  
Management Earnings Forecast ◽  
Accrual Mispricing

ABSTRACT: We investigate the association between errors in management forecasts of subsequent year earnings and current year accruals. In an uncertain operating environment, managers' assessments of their firms' business prospects are imperfect. Since managers' imperfect business assessments influence both accruals generation and earnings projection, we hypothesize that management earnings forecasts exhibit greater optimism (pessimism) when accruals are relatively high (low). Consistent with this hypothesis, we find a positive association between management earnings forecast errors and accruals. This positive association is stronger for firms operating in a more uncertain business environment and for firms in industries exhibiting greater covariation between accruals and growth-related activities. Moreover, this positive association is significant when accruals likely reflect managers' true beliefs about firms' business prospects, but is nonexistent when accruals are likely manipulated to boost managers' trading gains. Supplementary analysis reveals that the presence of management earnings forecasts does not significantly reduce accrual mispricing.

An Empirical Test of the Signaling Effect of Management's Earnings Forecasts: A Decomposition of the Earnings Surprise and Forecast Surprise Effects

1995 ◽  
Vol 10 (4) ◽  
pp. 787-802 ◽  
Author(s):  
Gillian Hian Heng Yeo ◽  
David A. Ziebart
Keyword(s):  
Stock Market ◽  
Market Reaction ◽  
Empirical Test ◽  
Earnings Forecasts ◽  
The Other ◽  
Earnings Forecast ◽  
Corporate Management ◽  
Management Earnings Forecasts ◽  
Market Reactions ◽  
Earnings Surprise

When corporate management issues an earnings forecast there are potentially two surprises. One potential surprise is that a forecast was issued and the other is the surprise in the earnings forecast. Accordingly, the observed stock market reaction to management earnings forecasts may be due to one or the other, or both. This study decomposes the cross-sectional variability in stock market reactions to management earnings forecasts into the portions attributable to the forecast surprise and the earnings surprise. The results indicate that the market's reaction is a function of both the earnings surprise and the forecast surprise. However, the market reaction is more associated with forecast surprise than with the earnings surprise. This suggests that results in previous studies on the market reactions to management earnings forecasts may need to be reconsidered.

scholarly journals The Impact Of Social Capital On The Propensity And Properties Of Management Earnings Forecasts

2014 ◽  
Vol 30 (6) ◽  
pp. 1803
Author(s):  
Xinyi Lu
Keyword(s):  
United States ◽  
Social Capital ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
The United States ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Financial Factor ◽  
The Impact ◽  
The Relationship

This paper examines the relationship between the regional variation in social capital in the United States and the propensity and properties of the management earnings forecasts. Social capital refers to connections among individualssocial networks and the norms of reciprocity and trustworthiness that arise from them (Putnam 2000). Using a comprehensive sample of companies in the United States, we find that firms located in region with higher social capital are more likely to issue a management earnings forecast and are inclined to forecast more frequently. In addition, earnings forecasts made by those firms tend to be more specific. Our findings suggest that mangers of firms in the high social capital regions are more likely to be concerned about their reputation of providing transparent information regarding their businesses because of the close connections among individuals and the greater propensities to honor obligations. This study contributes to the accounting literature by identifying a non-financial factor (i.e., social capital) that affects managements voluntary disclosure practices.

scholarly journals Management Earnings Forecast And Earnings Management: Does Prior-Period Forecast Accuracy Play A Role?

2013 ◽  
Vol 11 (3) ◽  
pp. 147 ◽  
Author(s):  
Jing-Wen Yang
Keyword(s):  
Earnings Management ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Bad News ◽  
Earnings Forecast ◽  
Font Size ◽  
Management Earnings Forecast ◽  
Different Levels

<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>

Do Stock Prices Influence Analysts' Earnings Forecasts?

2013 ◽  
Vol 26 (1) ◽  
pp. 85-108 ◽  
Author(s):  
Jeffrey S. Miller ◽  
Lisa M. Sedor
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Financial Analysts ◽  
Earnings Forecasts ◽  
Data Availability ◽  
Earnings Forecast ◽  
Future Earnings ◽  
Management Earnings Forecast ◽  
Stock Price Reaction ◽  
Made In

ABSTRACT This study uses an experiment with professional financial analysts to examine whether stock prices influence analysts' earnings forecasts. The findings indicate that analysts' revised forecasts made in response to a management earnings forecast differ depending on the level of uncertainty communicated by management's guidance and the stock price reaction to it. Lower (higher) stock price leads to lower (higher) analysts' forecasts when uncertainty about future earnings is high, but not when uncertainty about future earnings is low. Overall, the evidence suggests that the documented association between prior security returns and analysts' earnings forecasts is due, at least in part, to the influence of stock price on analysts' earnings forecasts. Data Availability: Contact the authors.

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