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

See all articles by Agnes Cheng

Agnes Cheng

Hong Kong Polytechnic University; University of Oklahama

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Lingyi Zheng

Hong Kong Polytechnic University

Date Written: February 28, 2022

Abstract

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

Cheng, Agnes and Hasan, Iftekhar and Xie, Jing and Zheng, Lingyi, Signaling Before the Deadline: Management Earnings Forecasts and Stock Performance Evaluation Dates (February 28, 2022). 2020 Canadian Academic Accounting Association Annual Conference, the 2020 American Accounting Association Annual Conference, Available at SSRN: https://ssrn.com/abstract=4045716 or http://dx.doi.org/10.2139/ssrn.4045716

Agnes Cheng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

University of Oklahama ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Jing Xie (Contact Author)

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

Hung Hom
Kowloon
Hong Kong

Lingyi Zheng

Hong Kong Polytechnic University ( email )

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