CEO Overconfidence and Management Forecasting

Abstract:     
This paper examines how overconfidence affects the properties of management forecasts. We examine three questions. First, we examine whether overconfidence increases the likelihood of issuing a forecast. Second, we examine whether overconfidence increases the amount of optimism in management forecasts. Third, we examine whether overconfidence increases the specificity and precision of the forecast. Using options‐ and press‐based measures to proxy for individual overconfidence, we find support for all three research questions. Further analyses suggest that the results are concentrated among firms that provide forecasts sporadically, consistent with overconfidence playing a stronger role when managers have more flexibility in determining forecast properties.

Number of Pages in PDF File: 61

Keywords: overconfidence, voluntary forecast, earnings management

JEL Classification: G30, M41, M43, M45

working papers series