The Relation between Internal Forecasting, Misreporting and the Importance of Meeting Performance Benchmarks

57 Pages Posted: 18 Aug 2017 Last revised: 30 Aug 2018

See all articles by Peter Kroos

Peter Kroos

University of Amsterdam - Amsterdam Business School

Mario Schabus

University of Melbourne

Frank Verbeeten

University of Amsterdam - Faculty of Economics and Business, Amsterdam Business School

Date Written: August 30, 2018

Abstract

We examine the relation between the importance for firms to meet external performance benchmarks and the role of internal forecasting and misreporting for increasing the likelihood of meeting benchmarks. Drawing on survey data from financial managers of investment centers, we hypothesize and find that the importance of meeting benchmarks is positively associated with the sophistication of firms’ internal forecasting, and misreporting. We next examine the relation between internal forecasting and misreporting, and find that one standard deviation increase in the sophistication of internal forecasting is associated with a 30% decrease in misreporting. The results suggest that firms with more sophisticated internal forecasting engage in less end-of-year misreporting. We contribute to the literature by studying attributes of firms’ internal forecasting as part of firms’ internal information environment. The paper especially speaks to the planning and coordination role of budgeting and forecasting, as opposed to the relatively more extensively studied evaluation and incentive role.

Keywords: Internal Forecasting, Internal Information Environment, Misreporting, Performance Benchmarks

Suggested Citation

Kroos, Peter and Schabus, Mario and Verbeeten, Frank H.M., The Relation between Internal Forecasting, Misreporting and the Importance of Meeting Performance Benchmarks (August 30, 2018). AAA 2018 Management Accounting Section (MAS) Meeting. Available at SSRN: https://ssrn.com/abstract=3022077 or http://dx.doi.org/10.2139/ssrn.3022077

Peter Kroos (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
Netherlands

Mario Schabus

University of Melbourne ( email )

Victoria, 3010
Australia

Frank H.M. Verbeeten

University of Amsterdam - Faculty of Economics and Business, Amsterdam Business School ( email )

Plantage Muidergracht 12
Amsterdam, 1018TV
Netherlands
(+31)0205257391 (Phone)

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