Self-Serving Attribution Bias, Overconfidence and the Issuance of Management Forecasts

Abstract

Prior studies document that managers consider a variety of costs and benefits in their decisions to initiate earnings guidance. Using both an abstract experiment and a survey of experienced financial managers, we provide evidence that managerial overconfidence may also contribute to the decision to provide guidance. Our abstract experiment shows that, in periods of strong macroeconomic or industry performance, in which positive outcomes are more easily achieved, managers engage in self-serving attribution. This increases overconfidence in improved future performance, which increases their willingness to initiate guidance. Two facets of the stable individual trait overconfidence, miscalibration and dispositional optimism, also contribute to confidence in improved future performance and willingness to initiate guidance. We conclude with a survey of experienced financial managers to confirm that our results from the abstract experiment align with managers’ beliefs about real-world voluntary disclosure decisions. Financial managers agree that other managers are likely to overestimate the extent to which they contribute to positive firm performance when the economy is doing well, and that both overoptimism about firm performance and overconfidence in their ability to predict future firm performance may contribute to issuance of guidance.

Keywords: Self-Serving Attribution Bias, Overconfidence, Voluntary Disclosure, Earnings Forecasts