Signaling Before the Deadline: Management Earnings Forecasts and Stock Performance Evaluation Dates
2020 Canadian Academic Accounting Association Annual Conference, the 2020 American Accounting Association Annual Conference
49 Pages Posted: 28 Mar 2022 Last revised: 14 Nov 2022
Date Written: February 28, 2022
We find that CEOs issue significantly more favorable (relative to analyst consensus) management earnings forecasts (MEFs) to signal better future performance when approaching their stock performance evaluation dates. The effect is more pronounced when firms are more undervalued and for firms with greater board independence. We find that these forecasted earnings are lower than actual earnings, implying that CEOs do not issue MEFs optimistically to mislead investors. Overall, we show that the price-based share granting motivates managers to disclose their private information on firms’ potentials, a piece of novel evidence that has important implications for the executive compensation contract design.
Keywords: Management earnings forecast; performance-based equity award; price-based performance metrics; performance evaluation dates
JEL Classification: D82; M41; M52; J33
Suggested Citation: Suggested Citation