Management Forecast Accuracy and CEO Turnover

Posted: 5 Jun 2012

See all articles by Sam (Sunghan) Lee

Sam (Sunghan) Lee

Iowa State University; Iowa State University - Department of Accounting and Finance

Steven R. Matsunaga

University of Oregon

Chul W. Park

The University of Hong Kong - School of Business

Date Written: February 1, 2012

Abstract

We investigate whether management forecast accuracy provides a signal regarding CEOs' ability to anticipate and respond to future events by examining the relation between management forecast errors and CEO turnover. We find that the probability of CEO turnover is positively related to the magnitude of absolute forecast errors when firm performance is poor and that this positive relation holds for both positive and negative forecast errors. In addition, we find that the positive relation between CEO turnover and the absolute forecast errors are concentrated in the sample of less entrenched CEOs. Our findings indicate that boards of directors use management forecast accuracy as a signal of CEOs' managerial ability and that managers bear a cost for issuing inaccurate forecasts.

Keywords: Management Forecast Accuracy, CEO Ability, CEO Turnover

Suggested Citation

Lee, Sam (Sunghan) and Matsunaga, Steven R. and Park, Chul Won, Management Forecast Accuracy and CEO Turnover (February 1, 2012). Accounting Review, 2012, Available at SSRN: https://ssrn.com/abstract=2078441

Sam (Sunghan) Lee (Contact Author)

Iowa State University ( email )

Gerdin Building 3323
Ames, IA 50010
United States

Iowa State University - Department of Accounting and Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Steven R. Matsunaga

University of Oregon ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States
503-346-3340 (Phone)
503-346-3341 (Fax)

Chul Won Park

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
+852-2859-1081 (Phone)

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