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Credibility of Management Forecasts

Posted: 15 Apr 2005  

Jonathan L. Rogers

University of Colorado at Boulder - Leeds School of Business

Phillip C. Stocken

Tuck School of Business at Dartmouth

Multiple version iconThere are 2 versions of this paper

Abstract

We examine how the market's ability to assess the truthfulness of management earnings forecasts affects how managers bias their forecasts, and we evaluate whether the market's response to management forecasts is consistent with it identifying predictable forecast bias. We find managers' willingness to misrepresent their forward-looking information in response to their incentives varies with the market's ability to detect misrepresentation. We examine incentives induced by the litigation environment, insider trading activities, firm financial distress, and industry concentration. With regard to the stock price response to forecasts, we find the market varies its response with the predictable bias in the forecast. The efficiency of the market's response, however, varies with the forecast news.

Keywords: management forecast credibility, voluntary disclosure, management incentives, rational expectations

JEL Classification: G12, G14, G33, D82, M41

Suggested Citation

Rogers, Jonathan L. and Stocken, Phillip C., Credibility of Management Forecasts. Accounting Review, Vol. 80, October 2005. Available at SSRN: https://ssrn.com/abstract=690662

Jonathan Rogers

University of Colorado at Boulder - Leeds School of Business ( email )

419 UCB
Boulder, CO 80309-0419
United States

Phillip Stocken (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-2843 (Phone)

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