Economic Downturns and the Informativeness of Management Earnings Forecasts

Journal of Accounting Research, Forthcoming

62 Pages Posted: 14 Jul 2019 Last revised: 19 Apr 2021

See all articles by David A. Maslar

David A. Maslar

University of Tennessee, Knoxville - Department of Finance; University of Tennessee, Knoxville - College of Business Administration

Matthew Serfling

University of Tennessee

Sarah Shaikh

University of Washington - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: April 9, 2021

Abstract

Economic downturns create uncertainty about a firm’s operations and make it disproportionately harder for outside market participants to assess the firm’s prospects. We posit that in this environment, management earnings forecasts will be more informative to investors and analysts. Consistent with this prediction, we find larger stock price reactions and analyst forecast revisions to news in management forecasts during downturns. Holding the amount of news in forecasts constant, stock price reactions to management forecasts are also greater than those to analyst forecasts. We also find that relative to analyst forecasts, management forecast accuracy increases during downturns, suggesting that investors justifiably assess management forecasts as more informative. Overall, we document that macroeconomic conditions create time-series variation in the informativeness of different sources of information to outside market participants.

Keywords: Management forecasts, Analysts, Reactions, Downturns, Uncertainty

JEL Classification: G12, G14, M40, M41

Suggested Citation

Maslar, David A. and Serfling, Matthew and Shaikh, Sarah, Economic Downturns and the Informativeness of Management Earnings Forecasts (April 9, 2021). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3419128 or http://dx.doi.org/10.2139/ssrn.3419128

David A. Maslar

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States

University of Tennessee, Knoxville - College of Business Administration ( email )

453 Haslam Business Building
Knoxville, TN 37996
United States

Matthew Serfling (Contact Author)

University of Tennessee ( email )

Haslam College of Business
Knoxville, TN 37996
United States
865-974-1952 (Phone)

Sarah Shaikh

University of Washington - Department of Accounting ( email )

Seattle, WA WA
United States

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