The Rodney L. White Center for Financial Research Credibility of Management Forecasts
The Rodney L. White Center for Financial Research Credibility of Management Forecasts
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发表时间：
2003
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通讯作者：
Jonathan L. Rogers;Phillip C. Stocken
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作者：
Jonathan L. Rogers;Phillip C. Stocken
We examine how the market’s ability to assess the truthfulness of management earnings forecasts affects the extent to which managers bias their forecasts, and we evaluate whether the market’s response to management forecasts is consistent with it identifying the predictable bias in forecasts. We find that managers more likely to face litigation release less optimistic forecasts than managers less likely to face litigation, and this incentive is dampened when it is more difficult to detect whether managers have misrepresented their forward-looking information. Further, when it is more difficult to detect forecast bias, we find that managers are more likely to offer forecasts that increase their profits from insider transactions and managers of financially distressed firms are more optimistic than those of healthy firms. With regard to the stock price response to forecasts, we find the market’s immediate response varies with the predictable bias in good but not bad news forecasts. The market’s subsequent response, however, is consistent with investors eventually identifying the bias in bad news forecasts and modifying their valuation of the firm in the appropriate direction. ∗We thank Brian Bushee, Phil Berger, John Core, Gus De Franco, Amy Hutton, Chris Ittner, Dave Larcker, Christian Leuz, David Mest, Shiva Sivaramakrishnan, Ireme Tuna, Ro Verrecchia and workshop participants at the University of Houston, University of Pennsylvania, 2002 American Accounting Association Annual Meetings, and the 2003 European Accounting Association Meetings for helpful comments. We also gratefully acknowledge support from the Rodney L. White Center for Financial Research and thank First Call for providing data used in this study. Please address all correspondence to: Phillip Stocken, The Wharton School, University of Pennsylvania, Philadelphia, PA 19104. Telephone: (215) 898-4942. Fax: (215) 573-2054. E-mail: pstocken@wharton.upenn.edu.
