Management Forecasts in Japan: An Empirical Study of Forecasts that are Effectively Mandated

The Accounting Review, Vol. 84, No. 5, September 2009

51 Pages Posted: 8 Sep 2006 Last revised: 29 Dec 2012

Kazuo Kato

Osaka University of Economics

Douglas J. Skinner

The University of Chicago - Booth School of Business

Michio Kunimura Sr.

Meijo University

Date Written: April 30, 2009

Abstract

We study management forecasts in Japan, where forecasts are effectively mandated but managers have considerable latitude over the numbers they release. We find that managers’ initial earnings forecasts for a fiscal year are systematically upward-biased but that they revise their forecasts downward during the fiscal year so that most earnings surprises are non-negative. Managers’ initial forecast optimism is inversely related to firm performance, and is more pronounced for firms with higher levels of insider ownership, for smaller firms, and for firms with a history of forecast optimism. The fact that managers’ forecasts tend to be consistently optimistic suggests that reputation effects are insufficient to ensure managerial forecast accuracy. We also find that the information content of managers’ forecasts is related to proxies for whether market participants view the forecasts as credible.

Keywords: Management Forecasts, Disclosure, Litigation, Japan

JEL Classification: G14, M41, M45, M47

Suggested Citation

Kato, Kazuo and Skinner, Douglas J. and Kunimura, Michio, Management Forecasts in Japan: An Empirical Study of Forecasts that are Effectively Mandated (April 30, 2009). The Accounting Review, Vol. 84, No. 5, September 2009. Available at SSRN: https://ssrn.com/abstract=928871

Kazuo Kato

Osaka University of Economics ( email )

2-2-8 Osumi
Higashiyokogawa-ku
Osaka
Japan

Douglas J. Skinner (Contact Author)

The University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7137 (Phone)

Michio Kunimura Sr.

Meijo University ( email )

Japan

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