Do Management Earnings Forecasts Incorporate Information in Accruals?
Posted: 25 Nov 2009
Date Written: September 23, 2009
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: Suggested Citation