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Forecast Errors in Undisclosed Management Sales Forecasts: The Disappearance of the Overoptimism Bias


  • Müller, Hans Christian


Previous empirical evidence which evaluated the accuracy of management earnings or sales forecasts consistently revealed these forecasts to be on average significantly overoptimistic. However, all studies analyzed forecasts from public disclosures, which are an important signal to investors and analysts and thus likely biased by strategic considerations. To disentagle, whether and to which extent strategic deception or cognitive biases are resposible for this overoptimism, the present study analyzes the accuracy of 6,276 undisclosed, company-internal sales forecasts, which German firms provided anonymously to the IAB Establishment Panel. Quite surprisingly, the study reveals the average forecast to be significantly overpessimistic. I propose that the non-existence of a general bias towards overoptimism is due to the lack of incentives to consciously overgloss future prospects in undisclosed forecasts and that overpessimism may be a consequence of loss aversion.

Suggested Citation

  • Müller, Hans Christian, 2011. "Forecast Errors in Undisclosed Management Sales Forecasts: The Disappearance of the Overoptimism Bias," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48683, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc11:48683

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    References listed on IDEAS

    1. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
    2. Koji Ota, 2010. "The Value Relevance of Management Forecasts and Their Impact on Analysts' Forecasts: Empirical Evidence From Japan," Abacus, Accounting Foundation, University of Sydney, vol. 46(1), pages 28-59.
    3. repec:bla:joares:v:37:y:1999:i:1:p:57-81 is not listed on IDEAS
    4. Klaus Abberger & Manuel Birnbrich & Christian Seiler, 2009. "Der »Test des Tests« im Handel - eine Metaumfrage zum ifo Konjunkturtest," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 62(21), pages 34-41, November.
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    More about this item


    Management forecasts; Overoptimism; Overpessimism; Germany;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting


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