Post-Acquisition Earnings Forecasts: Unintentional Optimism or Strategic Bias?

36 Pages Posted: 13 Dec 2018

Date Written: December 1, 2018


I examine whether and why the completion of an acquisition affects the bias in managers’ earnings forecasts, and three disclosure consequences to understand the source of the bias. I find systematic optimism in acquiring firms’ earnings forecasts after an acquisition. Prior research suggests this bias can arise from an intentional, strategic motive by management or an unintentional, psychological bias. To disentangle these possible explanations, I examine whether the bias varies predictably with acquisition characteristics that enhance managers’ perceived commitment and control to an acquisition, and whether the bias is associated with subsequent disclosure costs. I find post-acquisition forecast optimism is more likely for diversifying acquisitions, relatively-larger acquisitions and acquisitions management completed despite a negative market reaction to its announcement. In addition, post-acquisition forecast optimism is associated with negative disclosure consequences, including lower analyst responses to future forecasts, greater likelihood of a class action lawsuit dismissal, and greater likelihood of CEO departure. Together, these tests support the argument that managers’ optimistic bias is related to unintentional, rather than strategic, optimism regarding the recently completed acquisition.

Keywords: management forecasts, acquisitions, optimistic bias

Suggested Citation

Huseman, Olivia, Post-Acquisition Earnings Forecasts: Unintentional Optimism or Strategic Bias? (December 1, 2018). Available at SSRN: or

Olivia Huseman (Contact Author)

Chapman University ( email )

Orange, CA 92866
United States

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