Do Management Earnings Forecasts Incorporate Information in Accruals?

Posted: 25 Nov 2009

See all articles by Weihong Xu

Weihong Xu

State University of New York (SUNY) - Accounting & Law

Date Written: September 23, 2009

Abstract

I investigate whether management earnings forecasts fully reflect the implications of accruals for future earnings. I find that managers overestimate accrual persistence in range forecasts but not in point forecasts and that managers’ accrual-related forecast bias in range forecasts increases with forecast range and forecast horizon. My results suggest that managers overestimate accrual persistence when faced with greater difficulty forecasting earnings. Moreover, I find that managers’ accrual-related forecast bias in range forecasts is somewhat affected by managerial opportunism and fear of litigation. Finally, I find accrual mispricing for firms issuing range forecasts but not for firms issuing point forecasts.

Keywords: Accruals, Persistence, Management forecasts, Forecast errors

JEL Classification: M41

Suggested Citation

Xu, Weihong, Do Management Earnings Forecasts Incorporate Information in Accruals? (September 23, 2009). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1511963

Weihong Xu (Contact Author)

State University of New York (SUNY) - Accounting & Law ( email )

Buffalo, NY 14260
United States
716-645-5434 (Phone)
716-645-3823 (Fax)

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