Endogenous Expectations Management with Network Effects: A Note

We examine the endogenous choice of commitment device to consumers’ expectations with network effects. Under Cournot competition, we show that choosing commitment to expectations for each firm is a dominant strategy regardless of the strength of network effects. However, under Bertrand competition, three types of commitment with both/no commitment/multiple emerge in equilibrium depending on the strength of network effects. Thus, we obtain different Pareto efficiency between Bertrand and Cournot competition, depending on the intensity of competition.

The Combination of US Economy Policies under the Liquidity Trap Crisis

This paper examines what policy combinations the US economy should adopt to escape a possible liquidity trap under the impact of the COVID-19. We used the method of argumentation and drew on the previous related theories for comprehensive analysis, including fiscal policy, unconventional open market operations, expectations management and multinational policy coordination, to produce policy recommendations.

Expectations Management and Stock Returns

We establish a link between firms managing investors’ performance expectations, earnings announcement premiums, and cyclical patterns (i.e., seasonalities) in returns. Firms that are more likely to manage expectations toward beatable levels predictably earn lower returns before, and higher returns during, their earnings announcements. This pattern repeats across firms’ fiscal quarters, suggesting firms manufacture positive “surprises” by negatively biasing investors’ expectations ahead of announcing earnings. We corroborate these findings using non-price-based outcomes indicative of expectations management. Together, our findings are consistent with the pressure for firms to meet earnings targets shaping the cross-section of firms’ stock returns.

CEO career concerns and expectations management

Purpose The purpose of this paper is to examine the impact of career concerns on CEOs’ use of expectations management to meet or beat analysts’ quarterly earnings forecasts. The authors posit that early career-stage CEOs are less (more) likely to use expectations management than are late career-stage CEOs if the market views expectations management as an opportunistic strategy (efficient process) due to reputational capital concerns. Design/methodology/approach The authors obtain data for CEO career stages and CEO compensation from ExecuComp, analyst earnings forecasts from the detailed I/B/E/S database, financial statement data from quarterly Compustat and stock returns from the daily CRSP database over the period 1992–2013. Findings The results are consistent with the opportunistic hypothesis and early-stage CEOs seeking to build reputational capital by avoiding the perception of engaging in an inefficient managerial strategy. The authors find robust evidence that late career-stage CEOs are more likely to engage in expectations management than early career-stage CEOs. Furthermore, the authors show that late career-stage CEOs tend to employ expectations management to boost the value of their equity-based compensation. Research limitations/implications The findings have important implications because the authors document a different implication of the “horizon problem” related to CEOs’ opportunistic forecasting behavior and the manipulation of analysts’ forecasts for CEOs who are approaching retirement. Practical implications The results have practical implications for analysts who provide earnings forecasts for firms whose CEOs are in early or late career stages and for investors who use such analysts’ forecasts in firm valuation models. Originality/value The authors contribute to the literature on expectations management by documenting how reputational incentives of CEOs affect the likelihood that managers engage in expectations management. The authors show that an important managerial incentive to engage in expectations management is CEO career concerns. Furthermore, the authors show that CEOs who are in early stages of their careers choose not to engage in expectations management due to the market’s perceived degree of opportunism pertaining to this strategy.