Management Forecast Accuracy and CEO Turnover

2012 ◽  
Vol 87 (6) ◽  
pp. 2095-2122 ◽  
Author(s):  
Sam (Sunghan) Lee ◽  
Steven R. Matsunaga ◽  
Chul W. Park
Keyword(s):  
Firm Performance ◽  
Boards Of Directors ◽  
Forecast Accuracy ◽  
Ceo Turnover ◽  
Forecast Errors ◽  
Positive Relation ◽  
Managerial Ability ◽  
Management Forecast ◽  
Future Events ◽  
The Absolute

ABSTRACT We investigate whether management forecast accuracy provides a signal regarding CEOs' ability to anticipate and respond to future events by examining the relation between management forecast errors and CEO turnover. We find that the probability of CEO turnover is positively related to the magnitude of absolute forecast errors when firm performance is poor and that this positive relation holds for both positive and negative forecast errors. In addition, we find that the positive relation between CEO turnover and the absolute forecast errors is concentrated in the sample of less entrenched CEOs. Our findings indicate that boards of directors use management forecast accuracy as a signal of CEOs' managerial ability and that managers bear a cost for issuing inaccurate forecasts.

Are CEOs and CFOs Rewarded for Disclosure Quality?

2014 ◽  
Vol 90 (3) ◽  
pp. 1013-1047 ◽  
Author(s):  
Kai Wai Hui ◽  
Steven R. Matsunaga
Keyword(s):  
Boards Of Directors ◽  
Forecast Accuracy ◽  
High Growth ◽  
Effective Communication ◽  
Disclosure Quality ◽  
Management Forecast ◽  
Growth Firms ◽  
Financial Disclosures ◽  
Cfo Compensation

ABSTRACT This study provides evidence regarding the importance that boards of directors place on effective communication with the investor community by examining whether CEO and CFO compensation are related to the quality of the firm's financial disclosures. Using an index derived from analyst forecast characteristics and management forecast accuracy to measure disclosure quality, we find changes in the annual bonus for both the CEO and CFO to be positively associated with changes in disclosure quality. We also find that the relation is stronger for high-growth firms, firms that have stronger governance structures, and for executives with lower equity incentives. Overall, our findings provide insight into the importance that boards place on effective communication with investors as a responsibility of the CEO and CFO and, therefore, provide them with contractual incentives to address the moral hazard problem associated with voluntary disclosures. JEL Classifications: M41.

scholarly journals The Impact of Big Data on Firm Performance: An Empirical Investigation

2019 ◽  
Vol 109 ◽  
pp. 33-37 ◽  
Author(s):  
Patrick Bajari ◽  
Victor Chernozhukov ◽  
Ali Hortaçsu ◽  
Junichi Suzuki
Keyword(s):  
Big Data ◽  
Firm Performance ◽  
Empirical Investigation ◽  
Forecast Accuracy ◽  
Forecast Errors ◽  
Retail Sales ◽  
Sales Data ◽  
Empirical Results ◽  
Time Periods ◽  
The Impact

We examine the impact of “big data” on firm performance in the context of forecast accuracy using proprietary retail sales data obtained from Amazon. We measure the accuracy of forecasts in two relevant dimensions: the number of products (N), and the number of time periods for which a product is available for sale (T). Theory suggests diminishing returns to larger N and T, with relative forecast errors diminishing at rate 1/sqrt(N)+1/sqrt(T). Empirical results indicate gains in forecast improvement in the T dimension but essentially flat N effects.

Absolute Forecast Errors of Earnings in Malaysian IPO Prospectuses: The Impact of Ethnic Diversity

2014 ◽  
Vol 68 (3) ◽  
Author(s):  
Mohammed Abdullah Ammer ◽  
Nurwati A. Ahmad-Zaluki
Keyword(s):  
Ethnic Diversity ◽  
Boards Of Directors ◽  
Forecast Error ◽  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Ordinary Least Squares ◽  
Audit Committees ◽  
Earnings Forecast ◽  
Forecast Errors ◽  
The Impact

The main focus of this paper is the earnings forecast, a vital information included in IPO prospectus. Specifically, our paper examined the impact of ethnic diversity groups on the boards of directors and audit committees in terms of earnings forecast accuracy. We are motivated by the lack of prior studies related to investigating IPO earnings forecast. Cross-sectional Ordinary Least Squares (OLS) modeling was conducted on 190 Malaysian IPOs from 2002 to 2012. For the evaluation of earnings forecast accuracy, we mathematically used the metric of Absolute Forecast Error (AFER). Moreover, for the test of robustness, we used the metric of Squared Forecast Error (SQFER) as error measurement, as it mostly deals with large errors. The empirical results indicate that the ethnic diversity groups on boards and audit committees have an impact on the accuracy of earnings forecasts. However, the evidence is significant for Chinese and Malay serving on boards but insignificant in terms of Chinese and Malay serving on audit committee. The findings indicate that multi-ethnic groups in Malaysian IPO companies could hinder the capability of IPO companies to achieve accurate earnings forecasts in their prospectuses.

Can Managers be Wrong and Still be Right? An Examination of the Future Realization of Current Management Forecast Errors

2020 ◽  
Author(s):  
Michael D. Kimbrough ◽  
Hanna Lee ◽  
Yue Zheng
Keyword(s):  
Forecast Errors ◽  
Managerial Ability ◽  
Current Management ◽  
Forecast Period ◽  
Earnings Announcement ◽  
Forecast Revisions ◽  
Future Earnings ◽  
Management Forecast ◽  
Incremental Information ◽  
The Future

We examine whether management forecast errors (MFEs), which are traditionally interpreted as backward-looking indicators of how well forecasts preempted earnings announcements, also operate as forward-looking measures that aid with predicting future earnings. This possibility arises if an MFE represents unrealized revenues or expenses a manager originally anticipated to occur in the forecast period but that ultimately occur in subsequent periods. Consistent with this possibility, we document that optimistic MFEs contain incremental information over current earnings for predicting future earnings realizations. This finding does not extend to pessimistic MFEs, consistent with such errors reflecting expectations management. The predictive information in optimistic MFEs is negatively related to managers' incentives to intentionally bias the forecast and is positively related to managerial ability. Analysts' post-earnings announcement forecasts for the subsequent period overestimate the future realization of MFEs but such overestimation is less severe when managers issue timely post-earnings announcement forecast revisions for subsequent periods.

Benefits of management disclosure precision on analysts’ forecasts

2014 ◽  
Vol 13 (4) ◽  
pp. 371-399 ◽  
Author(s):  
Yu-Ho Chi ◽  
David A. Ziebart
Keyword(s):  
Forecast Accuracy ◽  
Earnings Forecasts ◽  
Forecast Errors ◽  
Management Earnings Forecasts ◽  
Earnings Guidance ◽  
Short Term ◽  
Content Type ◽  
Management Forecast ◽  
Forecast Precision ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of management’s choice of forecast precision on the subsequent dispersion and accuracy of analysts’ earnings forecasts. Design/methodology/approach – Using a sample of 3,584 yearly management earnings per share (EPS) forecasts and 10,287 quarterly management EPS forecasts made during the period of 2002-2007 and collected from the First Call database, the authors controlled for factors previously found to impact analysts’ forecast accuracy and dispersion and investigate the link between management forecast precision and attributes of the analysts’ forecasts. Findings – Results provide empirical evidence that managements’ disclosure precision has a statistically significant impact on both the dispersion and the accuracy of subsequent analysts’ forecasts. It was found that the dispersion in analysts’ forecasts is negatively related to the management forecast precision. In other words, a precise management forecast is associated with a smaller dispersion in the subsequent analysts’ forecasts. Evidence consistent with accuracy in subsequent analysts’ forecasts being positively associated with the precision in the management forecast was also found. When the present analysis focuses on range forecasts provided by management, it was found that lower precision (a larger range) is associated with a larger dispersion among analysts and larger forecast errors. Practical implications – Evidence suggests a consistency in inferences across both annual and quarterly earnings forecasts by management. Accordingly, recent calls to eliminate earnings guidance through short-term quarterly management forecasts may have failed to consider the linkage between the attributes (precision) of those forecasts and the dispersion and accuracy in subsequent analysts’ forecasts. Originality/value – This study contributes to the literature on both management earnings forecasts and analysts’ earnings forecasts. The results assist in policy deliberations related to calls to eliminate short-term management earnings guidance.

Accounting Losses as a Heuristic for Managerial Failure: Evidence from CEO Turnovers

2018 ◽  
Vol 54 (2) ◽  
pp. 877-906 ◽  
Author(s):  
Aloke (Al) Ghosh ◽  
Jun Wang
Keyword(s):  
Performance Measures ◽  
Chief Executive Officer ◽  
Operating Performance ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Positive Relation ◽  
Managerial Ability ◽  
Financial Problems ◽  
Stock Performance ◽  
Incremental Information

We study the effects of accounting losses on chief executive officer (CEO) turnover. If accounting losses provide incremental information about managerial ability, boards can utilize the information in losses to assess CEOs’ stewardship of assets, which is why losses may serve as a heuristic for managerial failure. We find a positive relation between losses and subsequent CEO turnover after controlling for other accounting and stock-performance measures. We also find that losses are associated with an increase in board activity and that losses predict poor operating performance and future financial problems. Our results explain why CEOs manage earnings to avoid losses.

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