Publication Type
Journal Article
Version
acceptedVersion
Publication Date
6-2010
Abstract
Studying the determinants of management forecast precision is important because a better understanding of the factors affecting management’s choice of forecast precision can provide investors and other users with cues about the characteristics of the information contained in the forecasts. In addition, as regulators assess the regulation of voluntary management disclosures, they need to better understand how managers choose among forecast precision disclosure alternatives. Using 16,872 management earnings forecasts collected from 1995 through 2004, we provide strong evidence that forecast precision is negatively associated with the magnitude of the forecast surprise and that this negative association is stronger when the forecast is bad news than when it is good news. We also find that forecast precision is negatively associated with the absolute magnitude of the forecast error that proxies for the forecast uncertainty that managers face when they issue forecasts, and that the negative association is stronger when forecast errors are negative. These results are consistent with greater liability concerns related to bad news forecasts and negative forecast errors, respectively. Our study provides educators and researchers with important insights into management’s choice of earnings forecast precision, which is a component of the voluntary disclosure process that is not well understood.
Keywords
management forecasts, management forecast precision, management forecast surprise, management forecast error
Discipline
Accounting | Corporate Finance | Finance and Financial Management
Research Areas
Corporate Reporting and Disclosure
Publication
Accounting Horizons
Volume
24
Issue
2
First Page
165
Last Page
188
ISSN
0888-7993
Identifier
10.2308/acch.2010.24.2.165
Publisher
American Accounting Association
Citation
CHOI, Jong-Hag; MYERS, Linda A.; ZANG, Yoonseok; and ZIEBART, David A..
The Roles that Forecast Surprise and Forecast Error Play in Determining Management Forecast Precision. (2010). Accounting Horizons. 24, (2), 165-188.
Available at: https://ink.library.smu.edu.sg/soa_research/147
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.
Additional URL
https://doi.org/10.2308/acch.2010.24.2.165