How and Why Do Managers Use Public Forecasts to Guide the Market?

61 Pages Posted: 1 Jun 2020

See all articles by Ben Charoenwong

Ben Charoenwong

National University of Singapore - Department of Finance

Yosuke Kimura

Tokyo Institute of Technology - School of Engineering

Alan Kwan

The University of Hong Kong

Date Written: March 4, 2020

Abstract

We compare publicly disclosed forecasts and internal forecasts collected by confidential government surveys using a sample of publicly-listed Japanese firms. Both forecasts are mandatory and meaningfully predict corporate policy but on average public forecasts are pessimistic relative to internal forecasts. Firms with greater shareholder pressure and bonus-related compensation are more pessimistic. Public pessimism likely guides market beliefs down, predicting higher future stock returns, earnings surprises, and executive, but not rank-and-file, compensation. However, it flips to optimism when firms are financially constrained, consistent with an inter-temporal trade-off between benefits from meeting managerial goalposts versus maintaining financial flexibility.

Keywords: Managerial Forecasts, Strategic Disclosure, Market Efficiency, Administrative Data

JEL Classification: D83, E22, G14, G31, G34, G41

Suggested Citation

Charoenwong, Ben and Kimura, Yosuke and Kwan, Alan, How and Why Do Managers Use Public Forecasts to Guide the Market? (March 4, 2020). Available at SSRN: https://ssrn.com/abstract=3592103 or http://dx.doi.org/10.2139/ssrn.3592103

Ben Charoenwong (Contact Author)

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/519-ben

Yosuke Kimura

Tokyo Institute of Technology - School of Engineering ( email )

Tokyo
Japan

Alan Kwan

The University of Hong Kong ( email )

Pokfulam Road
Hong Kong, Pokfulam HK
China

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