Macroeconomic Uncertainty and Management Earnings Forecasts

Posted: 13 May 2010 Last revised: 31 Oct 2018

See all articles by Kyonghee Kim

Kyonghee Kim

Michigan State University

Shail Pandit

University of Illinois at Chicago

Charles E. Wasley

Simon School, University of Rochester

Date Written: June 25, 2015

Abstract

To provide evidence on the role macroeconomic uncertainty plays in managers’ decision to issue management earnings forecasts (MFs) this study develops and tests hypotheses about how such uncertainty affects the issuance and characteristics of MFs. Macroeconomic uncertainty is measured using the dispersion in GDP forecasts and the CBOE’s Volatility Index (VIX). We find that during periods of high macroeconomic uncertainty there is a decrease in the likelihood of MF issuance, consistent with managers assigning a higher cost to releasing forward-looking information as macroeconomic uncertainty increases. We also find that managers issue fewer good and bad news MFs, but more neutral MFs during periods of high macroeconomic uncertainty. Macroeconomic uncertainty also affects the characteristics of the MFs that managers do issue based on the findings that managers shift to more earnings preannouncements and to shorter-horizon, but more precise, MFs. Further analysis indicates that the regulatory changes imbedded in the Sarbanes-Oxley Act increased the costs of providing MFs, thereby increasing the sensitivity of MF issuance to macroeconomic uncertainty. The findings provide insight into the role macroeconomic uncertainty plays in managers’ decision to issue MFs and the characteristics of the MFs they choose to issue.

Keywords: Aggregate market uncertainty, macroeconomic uncertainty, market volatility, voluntary disclosure, management earnings forecasts, litigation risk

JEL Classification: M41, M43

Suggested Citation

Kim, Kyonghee and Pandit, Shailendra and Wasley, Charles E., Macroeconomic Uncertainty and Management Earnings Forecasts (June 25, 2015). Accounting Horizons, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1605404 or http://dx.doi.org/10.2139/ssrn.1605404

Kyonghee Kim

Michigan State University ( email )

N206 North Business Complex
632 Bogue Street
East Lansing, MI 48824
United States
517-432-2920 (Phone)

Shailendra Pandit (Contact Author)

University of Illinois at Chicago ( email )

601 South Morgan Street
University Hall, Room 2303
Chicago, IL 60607
United States
(312) 355-1331 (Phone)
(312) 996-4520 (Fax)

HOME PAGE: http://business.uic.edu/faculty/shailendra-shail-pandit

Charles E. Wasley

Simon School, University of Rochester ( email )

Rochester, NY 14627
United States
585-275-3362 (Phone)
585-442-6323 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
2,725
PlumX Metrics