Wednesday, October 30, 2013

Management Forecast Consistency

HILARY Gilles, HSU Charles, WANG Rencheng
Access the publisher's website  
The Journal of Accounting Research 52, 1 (2014) 163-191

We posit that management forecasts that are predictable transformations of realized earnings without random errors are more informative than unbiased forecasts which manifest small but unpredictable errors, even if biased forecasts are less accurate. Consistent with this intuition we find that managers who make consistent forecasting errors have a greater ability to influence investor reactions and analyst revisions, even after controlling for the effect of accuracy. This effect is more economically significant and statistically robust than that of forecast accuracy. More sophisticated investors and experienced analysts are found to have a better understanding of the benefits of consistent management forecasts