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Measuring News in Management Range Forecasts

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  • Tyler K. Jensen
  • Marlene A. Plumlee

Abstract

Management earnings forecasts expressed as a range have become the most common form of quantitative management guidance. Traditionally, the proxy for the sign and the magnitude of the information conveyed by these forecasts—the forecast news—is calculated as the difference between a pre‐forecast earnings expectation and the midpoint of the forecasted range. We provide strong evidence that this traditional measure understates the amount of information conveyed by range forecasts. More importantly, we demonstrate that information conveyed by the upper and lower bounds of the forecasts can be used to improve the classification of forecasts as conveying good or bad news and for calculating the magnitude of that news. We rely on these findings to suggest alternative methods of classifying management range forecasts as conveying good versus bad news and to refine the calculation of forecast news to include the broader information set. Our analysis also suggests that the information conveyed by the range when the forecasts are bundled (issued concurrent with an earnings announcement) is significantly different than when forecasts are not bundled. Overall, our study documents the importance of incorporating range‐related information when assessing the sign and the magnitude of the information conveyed by management range forecasts. Mesurer les annonces dans les fourchettes de prévisions des gestionnaires Les prévisions de bénéfices émises par des gestionnaires et exprimées sous forme de fourchette sont devenues la forme la plus courante d'orientation en matière de gestion quantitative. Habituellement, l'approximation du signe et de l'amplitude de l'information transmise par ces prévisions — les annonces de prévisions — est déterminée en calculant la différence entre les bénéfices attendus avant l'annonce des prévisions et le point médian de la fourchette de prévisions. Nous présentons des preuves convaincantes que cette mesure conventionnelle sous‐estime la quantité d'information transmise par les fourchettes de prévisions. Plus important encore, nous démontrons que l'information que fournissent les limites supérieure et inférieure de la fourchette de prévisions peut servir à améliorer la classification des prévisions en tant que porteurs d'une bonne ou d'une mauvaise nouvelle, ainsi qu’à calculer l'amplitude de cette annonce. Nous nous appuyons sur ces résultats pour suggérer d'autres méthodes de classification des fourchettes de prévisions en tant que porteurs d'une bonne ou d'une mauvaise nouvelle, ainsi que pour modifier le calcul de l'annonce des prévisions afin d'inclure l'ensemble élargi des éléments d'information. Notre analyse laisse également entendre que l'information fournie par une fourchette lorsque les prévisions sont groupées (formulées en même temps qu'une annonce de bénéfices) est passablement différente de celle obtenue lorsque les prévisions ne sont pas groupées. Dans l'ensemble, notre étude appuie l'importance de l'intégration de l'information liée à la fourchette de prévisions pour évaluer le signe et l'amplitude de l'information transmise par les prévisions de bénéfices émises par les gestionnaires.

Suggested Citation

  • Tyler K. Jensen & Marlene A. Plumlee, 2020. "Measuring News in Management Range Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 37(3), pages 1687-1719, September.
  • Handle: RePEc:wly:coacre:v:37:y:2020:i:3:p:1687-1719
    DOI: 10.1111/1911-3846.12570
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