Management Sales Forecasts and Incremental Accruals

39 Pages Posted: 18 Jul 2017

See all articles by Panagiotis I. Chronopoulos

Panagiotis I. Chronopoulos

Athens University of Economics and Business - Department of Accounting and Finance

Georgia Siougle

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: December 23, 2016

Abstract

We investigate the importance of sales forecasts, voluntarily disclosed by management, on the understanding of the accrual component of earnings. The challenging global economic environment, with unanticipated changes, emphasizes the importance of accrual- based reporting on investment decisions. On that ground we develop an incremental accrual measure, derived by management sales forecasts, and relate it with management earnings forecast errors intending to capture additional information valuable to capital market participants. We find a negative and significant association between the incremental accrual component of earnings and management forecast errors, over and above historical current accruals. These findings are supportive to the argument that voluntary disclosures mitigate information asymmetry and are useful in improving investors’ perception on future business performance. In terms of returns prediction, we find a significant association between the incremental accruals measure and future stock returns, implying that market participants can benefit by utilizing valuable information released through voluntary disclosed management sales forecasts.

Keywords: Incremental Accruals, Voluntary Disclosures, Management Sales Forecasts, Firm Performance

JEL Classification: M41, G14

Suggested Citation

Chronopoulos, Panagiotis I. and Siougle, Georgia, Management Sales Forecasts and Incremental Accruals (December 23, 2016). Available at SSRN: https://ssrn.com/abstract=3001726 or http://dx.doi.org/10.2139/ssrn.3001726

Panagiotis I. Chronopoulos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

Georgia Siougle

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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