Major Government Customer and Management Earnings Forecasts
51 Pages Posted: 8 Nov 2019 Last revised: 28 Oct 2020
Date Written: April 29, 2020
This paper examines whether customer base composition in the U.S., i.e., whether a firm’s major customers comprise of government entities or publicly traded companies, affects the properties of supplier’s management earnings forecasts. Using a sample of 1,168 management earnings forecasts from 1998 through 2014, we find that firms whose major customers are government entities (i.e., government suppliers) issue more precise and more accurate management earnings forecasts than firms whose major customers are public companies (i.e., corporate suppliers). Moreover, when managers disclose negative information to the market, earnings forecasts issued by government suppliers have greater price impact than those issued by corporate suppliers. Collectively, our empirical results suggest that having major government customers has a positive impact on the quality of management earnings forecasts.
Keywords: Customer-supplier relationship, Demand uncertainty, Major government customer, Information spillover, Management earnings forecasts
JEL Classification: G14, D80, M41
Suggested Citation: Suggested Citation