Terrorism Activities and Long-term Annual Management Forecasts

58 Pages Posted: 27 Jan 2020 Last revised: 22 Jan 2022

See all articles by Yuyuan Chang

Yuyuan Chang

South China University of Technology

Augustine Duru

American University - Kogod School of Business

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance

Christo A. Pirinsky

University of Central Florida

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Date Written: January 3, 2020

Abstract

We study the effects of terrorist attacks on firms’ long-term annual management earnings forecasts bias. We find that the managers of firms located closer to the epicenters of attacks are more likely to issue optimistic long-term annual earnings forecasts relative to the managers of a control group of unaffected firms. The exposure effect is stronger for more severe terrorist events, and firms with more uncertain fundamentals and less geographic diversification. In addition, we document that managers’ forecast optimism intensifies for firms with stronger negative stock market reaction to the terrorist event, for CEOs with higher ability and for companies that are more likely to issue equity or engage in acquisitions following the terrorist event. Overall, our results are consistent with the idea that long-term annual earnings forecasts are used by managers to counterbalance the short-term pessimistic response to terrorist attacks.

Suggested Citation

Chang, Yuyuan and Duru, Augustine and Fan, Yangyang and Pirinsky, Christo Angelov and Pevzner, Mikhail, Terrorism Activities and Long-term Annual Management Forecasts (January 3, 2020). Journal of Accounting and Public Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3513352 or http://dx.doi.org/10.2139/ssrn.3513352

Yuyuan Chang

South China University of Technology ( email )

China

Augustine Duru

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
202-885-1937 (Phone)
202-885-1992 (Fax)

Yangyang Fan

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Christo Angelov Pirinsky

University of Central Florida ( email )

College of Business Administration/Finance
PO Box 161400
Orlando, FL FL 32816
United States
407-823-5962 (Phone)

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

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