Top management team incentive dispersion and management earnings forecasts

We investigate whether heterogeneity in pay‐performance sensitivity (PPS) among top management team (TMT) members affects management earnings forecasts (MEFs). Extant studies find that dispersion of PPS among TMT members results in a lack of coordination among TMT members and has a significant consequence for the firm. Since the issuance of forecasts is jointly determined by TMT managers, we argue that heterogeneity in PPS among TMT members will affect forecast issuance. We find that firms are less likely to issue MEFs when PPS dispersion among TMT members is high. Moreover, the forecasts of these firms are less optimistic. Finally, our analyses reveal that the effect of dispersion of PPS among TMT members on MEFs is more pronounced when the difference in PPS between the chief executive officer and other executives is high or team tenure is short. Overall, our results suggest that heterogeneity in PPS among TMT members affects a firm's voluntary disclosures.