Managerial incentives and management forecast precision

Despite managers’ great discretion in determining management forecast characteristics, little is known about how managerial incentives affect these characteristics. In this paper we examine whether managers strategically choose the precision, or the specificity, of their earnings forecasts for self-...

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Main Authors: CHENG, Qiang, Luo, Ting, Yue, Heng
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Language:English
Published: Institutional Knowledge at Singapore Management University 2011
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Online Access:https://ink.library.smu.edu.sg/soa_research/981
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spelling sg-smu-ink.soa_research-19802013-05-14T05:30:08Z Managerial incentives and management forecast precision CHENG, Qiang Luo, Ting Yue, Heng Despite managers’ great discretion in determining management forecast characteristics, little is known about how managerial incentives affect these characteristics. In this paper we examine whether managers strategically choose the precision, or the specificity, of their earnings forecasts for self-serving purposes. Built on the finding that the market reaction to vague management forecasts is weaker than that to precise forecasts, we find that for management forecasts disclosed before insider sales, good news are more precise and bad news are less precise than other management forecasts. The opposite applies to management forecasts disclosed before insider purchases. These results are consistent with managers choosing the precision of their earnings forecasts to increase stock prices before insider sales and to decrease stock prices before insider purchases. Additional analyses indicate that the impact of managerial incentives on forecast precision is less pronounced when institutional ownership is high or when disclosure risk is high, and is more pronounced when it is more difficult for investors to assess the precision of managers’ information. 2011-08-01T07:00:00Z text https://ink.library.smu.edu.sg/soa_research/981 Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Management Forecast Managerial Incentives Insider Trading Forecast Precision Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Management Forecast
Managerial Incentives
Insider Trading
Forecast Precision
Accounting
Corporate Finance
spellingShingle Management Forecast
Managerial Incentives
Insider Trading
Forecast Precision
Accounting
Corporate Finance
CHENG, Qiang
Luo, Ting
Yue, Heng
Managerial incentives and management forecast precision
description Despite managers’ great discretion in determining management forecast characteristics, little is known about how managerial incentives affect these characteristics. In this paper we examine whether managers strategically choose the precision, or the specificity, of their earnings forecasts for self-serving purposes. Built on the finding that the market reaction to vague management forecasts is weaker than that to precise forecasts, we find that for management forecasts disclosed before insider sales, good news are more precise and bad news are less precise than other management forecasts. The opposite applies to management forecasts disclosed before insider purchases. These results are consistent with managers choosing the precision of their earnings forecasts to increase stock prices before insider sales and to decrease stock prices before insider purchases. Additional analyses indicate that the impact of managerial incentives on forecast precision is less pronounced when institutional ownership is high or when disclosure risk is high, and is more pronounced when it is more difficult for investors to assess the precision of managers’ information.
format text
author CHENG, Qiang
Luo, Ting
Yue, Heng
author_facet CHENG, Qiang
Luo, Ting
Yue, Heng
author_sort CHENG, Qiang
title Managerial incentives and management forecast precision
title_short Managerial incentives and management forecast precision
title_full Managerial incentives and management forecast precision
title_fullStr Managerial incentives and management forecast precision
title_full_unstemmed Managerial incentives and management forecast precision
title_sort managerial incentives and management forecast precision
publisher Institutional Knowledge at Singapore Management University
publishDate 2011
url https://ink.library.smu.edu.sg/soa_research/981
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