Determinants of Bias in Management Earnings Forecasts: Empirical Evidence from Japan
Musashi University - Department of Finance
INTERNATIONAL ACCOUNTING: STANDARDS, REGULATIONS, AND FINANCIAL REPORTING, G. N. Gregoriou & M. Gaber, eds., pp. 267-294, Elsevier Press, 2006
This paper investigates the effects of ten factors on bias in management earnings forecasts (MEF) using a sample of 28,000 forecasts announced by Japanese firms over the period 1979-1999. The ten factors are macroeconomic influence, industry, firm size, Exchange/OTC, external financing, financial distress, prior management forecast errors, growth, losses and management forecasts of dividends. Both univariate and multivariate analyses show that these factors are all associated with bias in MEF. Moreover, abnormal returns can be earned by predicting errors in MEF. This may suggest that the stock market act as if investors fixate on MEF, failing to fully incorporate systematic bias in MEF into share prices.
Keywords: Management forecast, Systematic bias
JEL Classification: M41, G14Accepted Paper Series
Date posted: December 21, 2006
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