The Joint Impact of Commitment to Disclosure and Prior Forecast Accuracy on Managers' Forecasting Credibility PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download The Joint Impact of Commitment to Disclosure and Prior Forecast Accuracy on Managers' Forecasting Credibility PDF full book. Access full book title The Joint Impact of Commitment to Disclosure and Prior Forecast Accuracy on Managers' Forecasting Credibility by Shankar Venkataraman. Download full books in PDF and EPUB format.
Author: Shankar Venkataraman
Publisher: ProQuest
ISBN: 9780549734284
Category :
Languages : en
Pages : 113
Get Book Here
Book Description
Author: Shankar Venkataraman
Publisher: ProQuest
ISBN: 9780549734284
Category :
Languages : en
Pages : 113
Get Book Here
Book Description
Author: D. Eric Hirst
Publisher:
ISBN:
Category :
Languages : en
Pages : 30
Get Book Here
Book Description
We examine how investor reaction to management earnings forecasts is a joint function of the form of the forecast and management's perceived credibility. In a laboratory experiment involving 126 individual investors, we compare investors' earnings predictions and their confidence therein after receiving point and closed range forecasts issued by managements whose previous forecasting accuracy is known to be either high or low. We used point and range forecasts, because they differ in the degree to which they communicate management's uncertainty about the future. We use management's prior forecasting accuracy as a measure of management's credibility, because prior research has documented the importance of this factor when considering the usefulness of management's voluntary forecasts.Our results show that, as expected, investors' earnings predictions are responsive to management's forecasts. However, as we hypothesized, forecast form did not influence investors' earnings estimates. In contrast, investors' confidence in their earnings predictions was influenced by the form of management's forecasts, but this effect emerged only when management was previously accurate in their forecasting. A similar interactive pattern was found in the dispersion of investors' predictions about the company's future earnings. Finally, consistent with the hypothesis that confidence is an important determinant of investor behavior, we find that investors' judgments of future stock price appreciation are a positive function of both unexpected earnings and the change in their confidence.Our study extends the literature on management forecasts by empirically testing the joint influence of management's credibility (i.e., forecasting accuracy) and forecast form. The prior literature has argued that both factors should be important, but has not delineated whether or how these two factors might interact. We present a theoretical framework that indicates when both factors should influence investor judgment.
Author:
Publisher:
ISBN:
Category : Dissertations, Academic
Languages : en
Pages : 668
Get Book Here
Book Description
Author: Robert D. Slater
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
ABSTRACT: The purpose of this study is to examine the impact of management altering its tone in communications on participants' perceptions of management credibility. Management's tone in communicating with participants was manipulated using communications from management under two treatment conditions. In period one of the study management's tone was manipulated within the management statement on internal controls as required by the Public Company Accounting Oversight Board's (PCAOB) Auditing Standards No. 2. In period one, participants had no knowledge of management's prior forecasting accuracy. Consistent with predicted hypotheses, the findings reveal that management can increase its credibility with participants by communicating its empathy, responsiveness, and understanding. Management's increased credibility was measured using both a validated credibility scale and by examining participants' reliance on management's forecasts. In period two of the study all participants had knowledge of management's forecast failure in period one. The results from period two found that tone could impact the rating of management's credibility when management had previously failed to meet a forecast but that tone had no impact on participant's changes in their earnings per share estimates after management had previously failed to meet a forecast.
Author: Michael Dobler
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Managerial forecast disclosure has gained increasing interest. Besides voluntary publication, managers are more and more obliged to disclose forecasts by recent accounting regulation. This acknowledges the common proposition that forecasts were exceptionally relevant and decision useful information for investors. But it neglects the problems of credibility arising from the non-verifiable nature of forecasts. My paper analytically investigates the credibility of managerial forecast disclosure introducing a game theoretic perspective by extracting robust implications from disclosure models. The analysis is two-fold, aiming first at a non-regulated environment and second at an environment with audit or liability systems. The results are alarming: Without enforcement, forecast credibility is linked to very restrictive conditions. In particular, unfavourable forecasts, e.g. going concern uncertainties, will be withheld. Different audit and litigation systems may increase or may lessen, but not eliminate the deficits. Upon the results of my analysis, I derive general regulative implications on enforcement mechanisms, managerial information endowment, and disclosure. These may assist but cannot assure the credibility of managerial forecast disclosure. In conclusion, whatever regulatory steps are taken, the value of forecast publication currently discussed in the context of voluntary prospective value reporting and mandatory risk reporting appears to be overestimated.
Author: Amy P. Hutton
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
Get Book Here
Book Description
We examine the properties of firms' forecasting records and whether the accuracy of their prior earnings forecasts affects investor response to their subsequent forecasts. Within the context of a Bayesian model of investor learning, we find that the stock price response to management forecast news is increasing in prior forecast accuracy and also in the length of a firm's forecasting record. Further, we document that investors are more responsive to extreme good and bad news forecasts when a firm has an established forecasting record. Overall, these results suggest that a firm's prior forecasting behavior allows it to establish a forecasting reputation.
Author: Holly Yang
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
Get Book Here
Book Description
This paper studies the capital market consequences of managers establishing an individual forecasting style. Using a manager-firm matched panel dataset, I examine whether and when manager-specific credibility matters. If managers' forecasting styles affect their perceived credibility, then the stock price reaction to forecast news should increase with managers' prior forecasting accuracy. Consistent with this prediction, I find that the stock price reaction to management forecast news is stronger when information uncertainty is high and when the manager has a history of issuing more accurate forecasts, indicating that individual managers benefit from establishing a personal disclosure reputation.
Author: Kathryn Kadous
Publisher:
ISBN:
Category :
Languages : en
Pages : 41
Get Book Here
Book Description
This paper reports the results of an experiment that examines how analyst forecast accuracy (i.e., how close an analyst's forecast is to realized earnings) and forecast boldness (i.e. how far the analyst's forecast is from the consensus forecast) affect the analyst's perceived credibility and investors' willingness to rely on and purchase the analyst's future reports. We hypothesize and find that forecast boldness magnifies the effect of forecast accuracy on these variables. That is, analysts who provide accurate, bold forecasts experience more positive consequences than those who provide accurate, non-bold forecasts, and analysts who provide inaccurate, bold forecasts experience more negative consequences than those who provide inaccurate, non-bold forecasts. We also find that these effects are not symmetric - the negative consequences of being bold and inaccurate exceed positive consequences of being bold and accurate. Our results are not sensitive to the level of the analyst's prior reputation.
Author: Jessica Osgood
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Management forecasts can have varying degrees of roundness, including sharp (e.g., a sales growth forecast of 9.73% or 10.27%), explicitly round (e.g., 10.00%), and rounded (e.g., 10%). Prior archival research indicates investors rely less upon round than sharp forecasts (Bamber, Hui, and Yeung 2010), yet it is unclear why this occurs or how contextual features of earnings forecasts moderate this effect. Moreover, this prior research has not distinguished between the effects of explicitly round versus rounded estimates. I provide evidence that the impact of forecast roundness on willingness to invest depends upon forecast uncertainty. That is, rounded sales forecasts enhance management credibility and make investors more willing to invest, but only when the level of forecast uncertainty is higher. Furthermore I find that investors react to explicitly round and rounded forecasts differently (i.e., 10.00% versus 10%), with explicitly round forecasts leading to higher willingness to invest when uncertainty is lower versus when uncertainty is higher similar to rounded forecasts. I also examine and find that managers can alter their language to repair credibility concerns resulting from a mismatch between forecast roundness and forecast uncertainty. Overall, my results show how a change as seemingly innocuous as rounding a sales forecast can alter investors' perceptions of management credibility and their willingness to invest. For example, my findings suggest conditions in which companies using a sharp underlying sales forecast to meet an earnings target can improve investors' perceptions by simply rounding the sales forecast disclosed while keeping the underlying number sharp. To the extent that investors react negatively to a mismatch between forecast roundness and forecast uncertainty, my results provide information to financial managers about how to carefully construct earnings forecasts to limit these negative reactions.
Author: Jennifer Francis
Publisher: Now Publishers Inc
ISBN: 1601981147
Category : Business & Economics
Languages : en
Pages : 97
Get Book Here
Book Description
This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.
