Management Forecast Consistency
Posted: 5 Mar 2014
Date Written: March 1, 2014
We posit that management forecasts, which are predictable transformations of realized earnings without random errors, are more informative than unbiased forecasts, which manifest small but unpredictable errors, even if biased forecasts are less accurate. Consistent with this intuition, we find that managers who make consistent forecasting errors have a greater ability to influence investor reactions and analyst revisions, even after controlling for the effect of accuracy. This effect is more economically significant and statistically robust than that of forecast accuracy. More sophisticated investors and experienced analysts are found to have a better understanding of the benefits of consistent management forecasts.
Keywords: Management forecast consistency, management forecast accuracy, investor reactions, analyst revisions
JEL Classification: M41, C90
Suggested Citation: Suggested Citation