Do Managers Benefit from Superior Forecasting?
52 Pages Posted: 8 Jan 2009 Last revised: 9 Oct 2009
Date Written: September 30, 2009
I examine whether superior managerial talent signaled through earnings forecast accuracy is associated with higher compensation and career prospects. In the spirit of Trueman’s  model, I expect that managers with superior forecast accuracy enjoy higher compensation and career prospects not as a result of their forecasting behavior per se, but rather because their observable forecasting behavior signals their unobservable managerial talent. Using a sample of CFOs in the S&P1500 providing management forecasts of annual and quarterly EPS over the period 1998-2006, I find that CFOs classified as superior forecasters receive higher bonus and equity pay, are more likely to advance their career, and enjoy higher salaries and initial equity grants in the subsequent year.
Keywords: CFO, compensation, career, earnings guidance, forecasting ability
JEL Classification: G29, J33, G34, M41, M45, G38
Suggested Citation: Suggested Citation