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Budgets, Internal Reports and Manager Forecast Accuracy
Gavin Cassar University of Pennsylvania - The Wharton School Brian Gibson University of New England (Australia) - New England Business School August 15, 2007 Abstract: This study investigates the association between the accuracy of revenue forecasts and the accounting activities of budget preparation and internal accounting report preparation. While both budgets and internal reports are widely used, empirical evidence concerning their influence on the prediction of future performance is extremely limited. Consistent with the availability of formal accounting information improving predictive performance, we observe that internal accounting report preparation significantly improves forecast accuracy. However, partitioning firms by forecasting difficulty reveals that the accuracy benefits from internal reports preparation are only observed for firms with high uncertainty. Further, the results provide limited support for linkages between budget preparation and forecast accuracy. While we observe the use of budget preparation and internal accounting report preparation are a function of firms' structural and environmental characteristics, firms do not appear to adopt these activities as a function of forecasting difficulty, but rather as a function of predicted changes in future growth.
Keywords: absolute forecast error, budgeting, forecasting, internal reporting JEL Classifications: M10, M40, M41, M46 Working Paper SeriesDate posted: October 25, 2006 ; Last revised: September 11, 2007Suggested CitationContact Information
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