Optimistic bias in management forecasts by Japanese firms to avoid forecasting losses
AbstractListed firms in Japan are effectively compelled to report management forecasts of sales, ordinary income, and net income along with actual earnings and sales each year. Prior studies report that Japanese managers tend to announce optimistic forecasts of earnings. We show that a large part (61.6%) of the overall optimistic bias in management earnings forecasts in Japan can be explained by loss forecast avoiding behavior of a small fraction (5.25%) of firms. Such behavior is caused in part by the view of the main bank and power group that the management forecast of earnings is the manager's earnings target. Our findings suggest that the Japanese stock market recognizes such loss forecast avoidance and accordingly discounts new information in management forecasts.
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Bibliographic InfoArticle provided by Elsevier in its journal The International Journal of Accounting.
Volume (Year): 46 (2011)
Issue (Month): 1 (March)
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Web page: http://www.elsevier.com/locate/inca/620179
Japanese corporate culture Management forecasts Forecast optimism Loss forecast avoidance;
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