Management Earnings Forecasts And Simultaneous Release Of Earnings News

Date Added: Jun 2010
Format: PDF

This paper examines the hypothesis that when disappointing information regarding a firm's performance is released, the firm's management faces particularly strong incentives to counter the disappointing news with overly optimistic forward-looking statements. To address this issue, the paper investigates the bias in management forecasts of annual earnings released concurrently with earnings announcements or with an additional shorter-horizon forecast of quarterly earnings. The paper predicts and finds that the more disappointing the earnings announcement news, the higher the optimistic bias in the concurrently released long-horizon forecasts of annual earnings.