Publication Type
Working Paper
Version
submittedVersion
Publication Date
1-2013
Abstract
Managers have great discretion in determining management forecast characteristics, but little is known about how managerial incentives affect these characteristics. In this paper, we examine whether managers strategically choose the precision of their earnings forecasts for self-serving purposes. Building on prior research demonstrating that the market reaction to vague management forecasts is weaker than its reaction to precise forecasts, we find that for management forecasts disclosed before insider sales, more positive (negative) news forecasts are more (less) precise than other management forecasts. The opposite applies to management forecasts disclosed before insider purchases. These results are consistent with managers strategically choosing the precision of their earnings forecasts to increase stock prices before insider sales and to decrease stock prices before insider purchases. Additional analyses indicate that the impact of managerial incentives on forecast precision is less pronounced when institutional ownership is high or when disclosure risk is high, and is more pronounced when it is difficult for investors to assess the precision of managers’ information.
Keywords
management forecast, managerial incentives, insider trading, forecast precision
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Reporting and Disclosure
First Page
1
Last Page
46
Citation
CHENG, Qiang; LUO, Ting; and YUE, Heng.
Managerial incentives and management forecast precision. (2013). 1-46.
Available at: https://ink.library.smu.edu.sg/soa_research/1049
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Published in Accounting Review. 2013 September, 88, (5), 1575-1602. https://doi.org/10.2308/accr-50506