Determinants of Management Forecast Precision

THE ACCOUNTING REVIEW, 1997

Posted: 30 Oct 1996

See all articles by Stephen P. Baginski

Stephen P. Baginski

University of Georgia - J.M. Tull School of Accounting

John M. Hassell

Indiana University Kelley School of Business Indianapolis

Abstract

Pownall, et. al. (1993) document that nearly 80% of their sample of voluntary management earnings forecasts are not precise point forecasts. Imprecise forecast forms include closed-interval forecasts (i.e., ranges), open-interval forecasts (i.e., minimums and maximums), and general impressions about firms' earnings prospects. Given analytical predictions that a signal's precision is important in belief development (Kim and Verrecchia, 1991; Morse, et al., 1991) and the empirical evidence that management forecast precision affects the beliefs of traders and financial analysts (Baginski, et al., 1993), the question arises as to what factors motivate a manager's choice of forecast precision. We perform cross-sectional logistic regressions to document determinants of forecast precision. Our sample consists of 1,212 annual and interim management forecasts. After controlling for firm-specific and horizon-specific earnings uncertainty, we find that managers produce more precise forecasts of annual earnings for firms with greater analyst following (our proxy for private information) and for smaller firms (our proxy for public information). The results are robust across subsamples. The majority of the results do not, however, hold for interim forecasts.

JEL Classification: M41, M43

Suggested Citation

Baginski, Stephen P. and Hassell, John M., Determinants of Management Forecast Precision. THE ACCOUNTING REVIEW, 1997. Available at SSRN: https://ssrn.com/abstract=2784

Stephen P. Baginski (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

John M. Hassell

Indiana University Kelley School of Business Indianapolis ( email )

801 W. Michigan Street
Indianapolis, IN 46202-5151
United States

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