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Management Forecast Consistency

Author

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  • GILLES HILARY
  • CHARLES HSU
  • RENCHENG WANG

Abstract

We posit that management forecasts, which are predictable transformations of realized earnings without random errors, are more informative than unbiased forecasts, which manifest small but unpredictable errors, even if biased forecasts are less accurate. Consistent with this intuition, we find that managers who make consistent forecasting errors have a greater ability to influence investor reactions and analyst revisions, even after controlling for the effect of accuracy. This effect is more economically significant and statistically robust than that of forecast accuracy. More sophisticated investors and experienced analysts are found to have a better understanding of the benefits of consistent management forecasts.

Suggested Citation

  • Gilles Hilary & Charles Hsu & Rencheng Wang, 2014. "Management Forecast Consistency," Journal of Accounting Research, Wiley Blackwell, vol. 52(1), pages 163-191, March.
  • Handle: RePEc:bla:joares:v:52:y:2014:i:1:p:163-191
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    File URL: https://doi.org/10.1111/1475-679X.12033
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    References listed on IDEAS

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    1. repec:eee:glofin:v:37:y:2018:i:c:p:79-99 is not listed on IDEAS
    2. repec:eee:advacc:v:41:y:2018:i:c:p:59-73 is not listed on IDEAS
    3. repec:eee:finlet:v:25:y:2018:i:c:p:266-273 is not listed on IDEAS
    4. Wang, Yizhong & Chen, Carl R. & Chen, Lifang & Huang, Ying Sophie, 2016. "Overinvestment, inflation uncertainty, and managerial overconfidence: Firm level analysis of Chinese corporations," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 54-69.
    5. Hilary, Gilles & Hsu, Charles & Segal, Benjamin & Wang, Rencheng, 2016. "The bright side of managerial over-optimism," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 46-64.
    6. Souhei Ishida & Takuma Kochiyama & Akinobu Shuto, "undated". "Are More Able Managers Good Future Tellers? Learning from Japan," CARF F-Series CARF-F-435, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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