Managers' Forecast Guidance of Analysts: International Evidence

Abstract

We consider forecast guidance as a mechanism that managers use to avoid negative earnings surprises. Modeling forecast guidance using methods by Matsumoto, [Accounting Review 77 (3) (2002) 483-514] and Bartov et al. [Journal of Accounting and Economics 33 (2) (2002) 173-204], we show that managers in strong-investor-protection countries are more likely to utilize forecast guidance to avoid negative earnings surprises than managers in weak-investor-protection countries. We also show that US managers are more prone to use forecast guidance to avoid negative earnings surprises than managers in other countries. Our results provide insight into the information dissemination process and how managers behave in response to weak regulation of informal disclosures in different investor protection environments.

Keywords: Forecast guidance, Analysts, Earnings, International, Investor protection

JEL Classification: M41, M43, F00, G29, G30, K00, M20