Publication Type
Journal Article
Publication Date
9-2013
Abstract
Managers have great discretion in determining forecast characteristics, butlittle is known about how managerial incentives affect these characteristics. This paperexamines whether managers strategically choose forecast precision for self-servingpurposes. Building on the prior finding that the market reaction to vague forecasts isweaker than its reaction to precise forecasts, we find that for management forecastsdisclosed before insider sales, more positive (negative) news forecasts are more (less)precise than other management forecasts. The opposite applies to managementforecasts disclosed before insider purchases. These results are consistent withmanagers strategically choosing forecast precision to increase stock prices beforeinsider sales and to decrease stock prices before insider purchases. Additional analysesindicate that the impact of managerial incentives on forecast precision is lesspronounced when institutional ownership is high or when disclosure risk is high, and ismore pronounced when investors have difficulty in assessing the precision of managers’information
Keywords
management forecast, managerial incentives, insider trading, forecast precision
Discipline
Accounting | Management Information Systems
Research Areas
Corporate Reporting and Disclosure
Publication
Accounting Review
Volume
88
Issue
5
First Page
1575
Last Page
1702
ISSN
0001-4826
Identifier
10.2308/accr-50506
Publisher
American Accounting Association
Citation
CHENG, Qiang; LUO, Ting; and YUE, Heng.
Managerial incentives and management forecast precision. (2013). Accounting Review. 88, (5), 1575-1702.
Available at: https://ink.library.smu.edu.sg/soa_research/1669
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/accr-50506