Should Managers Provide Forecasts Of Earnings?

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Executive Summary

Despite the risk of manipulation, management forecasts of earnings in investor communications are beneficial, says a University of Michigan researcher. In a new study commissioned by the independent and nonpartisan Committee on Capital Markets Regulation, Gregory Miller of Michigan's Ross School of Business found that Management Forecasts of Earnings (MFEs) provide net benefits, if done in the context of a full explanation of a company's strategy. Namely, the forecasts better align current market returns with long-term performance - even at the risk of managers abusing them to manipulate short-term market action for selfish purposes as pricing or cashing in management stock options.

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