The Effect of Lender Expectations Management on Mandatory Management Forecasts: Evidence from Cash Flow Forecasts by Early-Stage Mining Firms

Abstract

The objective of this study is to investigate whether management forecasts characteristics change around key debt financing events to meet expectations of debt holders. Examining a large sample of mandatory management forecasts of quarterly expenditure disclosed by early-stage mining companies, we find project finance approval results in managers increasing overestimates of cash outflows or creating ‘budget slack.’ This is consistent with managers using forecasts to ‘underpromise and overdeliver’ during project development.

Keywords: mandatory management forecasts, project finance, expectations management

JEL Classification: G32