Download or read book Ex Post Bias in Management Earnings Forecasts written by Afshad J. Irani and published by . This book was released on 1999 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effect of proprietary information, disclosure-related legal liability, earnings variability, financial distress, and external financing on bias in management earnings forecasts. Bias, specifically ex post bias (as is referred to in the management forecast literature), exists if the expected value of the observed management earnings forecasts differs from actual earnings. The effect of the test variables on ex post bias is investigated by examining whether a firm's forecast error (measure of ex post bias and defined as actual earnings minus management earnings forecast) is a function of the aforementioned variables. Proprietary information, disclosure-related legal liability, and earnings variability are hypothesized to be positively associated with ex post bias, while external financing and financial distress are expected to be negatively correlated. All the independent variables are measured using public information available at the time that the financial statements are released.Using a sample of 267 management earnings forecasts released during the period 1990-95 in the first three quarters of the fiscal year, I find that these forecasts are on average optimistic. Results from the multivariate regression analysis find that three of the five factors, proprietary information, financial distress and earnings variability, are significant in explaining ex post bias. For the most part, these findings are robust across various sub-samples.

Download or read book Analysts Awareness of Systematic Bias in Management Earnings Forecasts written by Koji Ota and published by . This book was released on 2007 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: The effectively mandatory provision of management earnings forecasts (MEF) is an unique feature of Japan's financial disclosure system. The first objective of this study is to identify the determinants of systematic bias in MEF using a sample of nearly 25,000 one-year-ahead earnings forecasts announced by Japanese firms at the beginning of a fiscal year over the period 1979-1999. The examination of ex post management forecast errors shows that financial distress, firm growth, firm size, and prior forecast errors are all associated with bias in MEF. The second objective of this study is to investigate whether analysts are aware of these factors that are related to systematic bias in MEF. The examination of analysts' forecasts issued subsequent to the announcement of management forecasts reveals that analysts take these factors into consideration when they issue their own earnings forecasts. These findings indicate that analysts are well aware of the determinants of systematic bias in MEF and make correct adjustments that lead to the higher accuracy of analysts' forecasts than management forecasts.

Download or read book A Reexamination of Bias in Management Earnings Forecasts written by Jong-Hag Choi and published by . This book was released on 2000 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Determinants of the Bias and Inaccuracy of Management Earnings Forecasts written by Andrew A. Anabila and published by . This book was released on 2014 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: The safe harbor provisions have increased over the years, following the Private Securities Litigation Reform Act (PSLRA) of 1996 and the Securities Litigation Uniform Standards Act (SLUSA) of 1998. The objective is to encourage more earnings guidance by managers. However, a number of firms like Coca Cola and Gillette moved to abandon quantitative earnings forecasts, due to concerns over the markets' response when they miss their forecasts. This study examines the determinants of management earnings forecasts bias and inaccuracy. The evidence suggests that forecast bias and inaccuracy are not systematically associated with diversification however, are associated with the fraction of nonoperating assets. Also, capital structure, audit quality and institutional holdings are systematic determinants of forecast bias and inaccuracy. Finally, industry attributes of munificence, dynamism and concentration are indicators of inherent imperfections of management forecasts, but are exogenous to management's control. The reasons for, and implications of these findings are discussed.

Download or read book Management Earnings Forecast Bias and Insider Trading written by Afshad J. Irani and published by . This book was released on 2001 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the association between bias in earnings forecasts released by managers of financially distressed firms and subsequent insider trading. Prior studies have documented optimism in such forecasts. Given this finding, this study investigates whether this optimism is systematically related to opportunistic management behavior or a sincere belief (by management) that their firm's financial situation is going to get better. Abnormal insider trading in the post management forecast period is examined to test these alternative explanations. The findings for the full sample are consistent with the opportunistic view, however the trading activity of non-managerial insiders seems to be the primary driver.

Download or read book Determinants of Bias in Management Earnings Forecasts written by Koji Ota and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the effects of ten factors on bias in management earnings forecasts (MEF) using a sample of 28,000 forecasts announced by Japanese firms over the period 1979-1999. The ten factors are macroeconomic influence, industry, firm size, Exchange/OTC, external financing, financial distress, prior management forecast errors, growth, losses and management forecasts of dividends. Both univariate and multivariate analyses show that these factors are all associated with bias in MEF. Moreover, abnormal returns can be earned by predicting errors in MEF. This may suggest that the stock market act as if investors fixate on MEF, failing to fully incorporate systematic bias in MEF into share prices.

Download or read book Bias and Accuracy of Management Earnings Forecasts written by Bruce J. McConomy and published by . This book was released on 2000 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper assesses how the bias and accuracy of managers' earnings forecasts in prospectuses were affected by a 1989 regulation that required the forecasts to be audited by public accountants. Theory suggests that auditors' association with the forecasts would reduce positive (optimistic) bias, by reducing moral hazard. Regulators expected that the audit requirement would also improve the accuracy of the forecasts. Both predictions were tested using management earnings forecasts disclosed in prospectuses of Canadian initial public offerings. The results show that audited forecasts contained significantly less positive bias than reviewed forecasts, but there was only a marginally significant improvement in accuracy.Key Words: Initial public offering; Bias; Earnings forecast.

Download or read book Investor Sentiment and Management Earnings Forecast Bias written by Helen Hurwitz and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates whether investor sentiment is associated with behavioral bias in managers' annual earnings forecasts that are generally issued early in the year when uncertainty is relatively high. I provide evidence that management earnings forecast optimism increases with investor sentiment. Furthermore, I find that managers' annual earnings forecasts are more pessimistic during low-sentiment periods than during normal-sentiment periods. Since managers lack incentives to further deflate stock prices during a low-sentiment period, this evidence indicates that sentiment-related management earnings forecast bias is likely to be unintentional. In addition, I find that the relation between management earnings forecast bias and investor sentiment is stronger for firms with higher uncertainty, consistent with investor sentiment having a greater influence on management earnings forecasts when uncertainty is higher.

Download or read book Managerial Behavior and the Bias in Analysts Earnings Forecasts written by Lawrence D. Brown and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managerial behavior differs considerably when managers report quarterly profits versus losses. When they report profits, managers seek to just meet or slightly beat analyst estimates. When they report losses, managers do not attempt to meet or slightly beat analyst estimates. Instead, managers often do not forewarn analysts of impending losses, and the analyst's signed error is likely to be negative and extreme (i.e., a measured optimistic bias). Brown (1997 Financial Analysts Journal) shows that the optimistic bias in analyst earnings forecasts has been mitigated over time, and that it is less pronounced for larger firms and firms followed by many analysts. In the present study, I offer three explanations for these temporal and cross-sectional phenomena. First, the frequency of profits versus losses may differ temporally and/or cross-sectionally. Since an optimistic bias in analyst forecasts is less likely to occur when firms report profits, an optimistic bias is less likely to be observed in samples possessing a relatively greater frequency of profits. Second, the tendency to report profits that just meet or slightly beat analyst estimates may differ temporally and/or cross-sectionally. A greater tendency to 'manage profits' (and analyst estimates) in this manner reduces the measured optimistic bias in analyst forecasts. Third, the tendency to forewarn analysts of impending losses may differ temporally and/or cross-sectionally. A greater tendency to 'manage losses' in this manner also reduces the measured optimistic bias in analyst forecasts. I provide the following temporal evidence. The optimistic bias in analyst forecasts pertains to both the entire sample and the losses sub-sample. In contrast, a pessimistic bias exists for the 85.3% of the sample that consists of reported profits. The temporal decrease in the optimistic bias documented by Brown (1997) pertains to both losses and profits. Analysts have gotten better at predicting the sign of a loss (i.e., they are much more likely to predict that a loss will occur than they used to), and they have reduced the number of extreme negative errors they make by two-thirds. Managers are much more likely to report profits that exactly meet or slightly beat analyst estimates than they used to. In contrast, they are less likely to report profits that fall a little short of analyst estimates than they used to. I conclude that the temporal reduction in optimistic bias is attributable to an increased tendency to manage both profits and losses. I find no evidence that there exists a temporal change in the profits-losses mix (using the I/B/E/S definition of reported quarterly profits and losses). I document the following cross-sectional evidence. The principle reason that larger firms have relatively less optimistic bias is that they are far less likely to report losses. A secondary reason that larger firms have relatively less optimistic bias is that their managers are relatively more likely to report profits that slightly beat analyst estimates. The principle reason that firms followed by more analysts have relatively less optimistic bias is that they are far less likely to report losses. A secondary reason that firms followed by more analysts have relatively less optimistic bias is that their managers are relatively more likely to report profits that exactly meet analyst estimates or beat them by one penny. I find no evidence that managers of larger firms or firms followed by more analysts are relatively more likely to forewarn analysts of impending losses. I conclude that cross-sectional differences in bias arise primarily from differential 'loss frequencies,' and secondarily from differential 'profits management.' The paper discusses implications of the results for studies of analysts forecast bias, earnings management, and capital markets. It concludes with caveats and directions for future research.

Download or read book An Empirical Investigation of Bias in Analysts Earnings Forecasts written by Hakan Saraoglu and published by . This book was released on 1996 with total page 318 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Do Managers Bias Their Forecasts of Future Earnings in Response to Their Firm s Current Earnings Announcement Surprises written by Stephen P. Baginski and published by . This book was released on 2020 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Approximately 90 percent of managers' earnings forecasts are issued simultaneously with their firm's current earnings announcement - a practice referred to as the “bundling” of earnings information. We examine whether managers bias these forecasts conditional on the news conveyed in current earnings, and offer three findings. First, managers appear to release optimistically biased earnings forecasts with simultaneously released negative current earnings news. Second, managers appear to release pessimistically biased earnings forecasts with simultaneously released large positive current earnings news. Third, these results (especially for optimistic bias when current earnings news is negative) are stronger when managers: (1) face less analyst monitoring and lower litigation risk, which constrain the ability to bias their forecasts, and (2) face greater career concerns, which create incentives to alter investor perceptions about current earnings. Additional analysis suggests that investors are unable to identify the management forecast bias, but that they unravel the bias subsequently as it is revealed. While no archival study can ascertain management intent, we provide several results that cast doubt on the idea that this management forecast bias behavior is purely unintentional. Overall, our evidence suggests that managers issue biased forecasts with the earnings announcement to influence perceptions of their firm's current earnings news.

Download or read book Ex post realization and valuation of management earnings forecasts manager s discretion and characteristics of forecasting firms written by Sungyu Sohn and published by . This book was released on 1992 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Managerial Earnings Forecasts Bias and Managers Decision to Issue Earnings Guidence written by Yoel Beniluz and published by . This book was released on 2006 with total page 248 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Effect of Issuing Biased Earnings Forecasts on Analysts Access to Management and Survival written by Bin Ke and published by . This book was released on 2006 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study offers evidence on the earnings forecast bias analysts use to please firm management and the associated benefits they obtain from issuing such biased forecasts in the years prior to Regulation Fair Disclosure. Analysts who issue initial optimistic earnings forecasts followed by pessimistic earnings forecasts before the earnings announcement produce more accurate earnings forecasts and are less likely to be fired by their employers. The effect of such biased earnings forecasts on forecast accuracy and firing is stronger for analysts who follow firms with heavy insider selling and hard-to-predict earnings. The above results hold regardless of whether a brokerage firm has investment banking business or not. These results are consistent with the hypothesis that analysts use biased earnings forecasts to curry favor with firm management in order to obtain better access to management's private information.

Download or read book Biased Forecasts or Biased Earnings The Role of Reported Earnings in Explaining Apparent Bias and Over Underreaction in Analysts Earnings Forecasts written by Jeffery S. Abarbanell and published by . This book was released on 2012 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: We demonstrate the role of three empirical properties of cross-sectional distributions of analysts' forecast errors in generating evidence pertinent to three important and heretofore separately analyzed phenomena studied in the analyst earnings forecast literature: purported bias (intentional or unintentional) in analysts' earnings forecasts, forecaster over/underreaction to information in prior realizations of economic variables, and positive serial correlation in analysts' forecast errors. The empirical properties of interest include: the existence of two statistically influential asymmetries found in the tail and the middle of typical forecast error distributions, the fact that a relatively small number of observations comprise these asymmetries and, the unusual character of the reported earnings benchmark used in the calculation of the forecast errors that fall into the two asymmetries that is associated with firm recognition of unexpected accruals. We discuss competing explanations for the presence of these properties of forecast error distributions and their implications for conclusions about analyst forecast rationality that are pertinent to researchers, regulators, and investors concerned with the incentives and judgments of analysts.Previously titled quot;Biased Forecasts or Biased Earnings? The Role of Earnings Management in Explaining Apparent Optimism and Inefficiency in Analysts' Earnings Forecastsquot.

Download or read book Exploring Managers Accrual Related Forecast Bias written by Sami Keskek and published by . This book was released on 2017 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we examine the effect of accrual-based earnings management on the association between managers' earnings forecast errors and accruals, which we label “managers' accrual-related forecast bias.” We build on extensive research which finds that managers engage in accrual-based earnings management to meet or beat earnings benchmarks and report smooth earnings series. We hypothesize that managers bias their subsequent-year forecasts in the direction of accruals management to increase market confidence in the managed earnings numbers. Consistent with our expectations, we find a positive association between managers' earnings forecast errors and discretionary accruals, but no association between managers' earnings forecast errors and nondiscretionary accruals. Furthermore, the association between managers' earnings forecast errors and discretionary accruals is stronger when managers have limited ability to continue managing subsequent-year accruals to support the bias in their forecasts. We also find a substantial decline in managers' accrual-related forecast bias following the enactment of the Sarbanes-Oxley Act of 2002 (SOX), which restricted managers' use of accrual-based earnings management. More importantly, we find that the effect of forecasting difficulty on managers' accrual-related forecast bias occurs only in the pre-SOX period. Overall, our results suggest that, contrary to claims in prior research, managers' accrual-related forecast bias is not simply a product of forecasting difficulty related to accruals. Rather, at least in some cases, it appears to be intentional.

Download or read book Chronic Bias in Earnings Forecasts written by Seung-Woog (Austin) Kwag and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Whatever the source or explanation of bias in forecasts of company earnings, if such bias persists, it is potentially discoverable and exploitable by investors. This research addresses (1) whether characterizing forecasts as if they were a homogeneous group with respect to bias is accurate or useful and (2) whether a long-term record of forecast errors contains information useful in predicting subsequent errors. We found that earnings forecasts are heterogeneous with respect to direction and degree of bias. We also found evidence of extremes in optimism and pessimism and that extreme errors tend to persist in the same direction, which suggests certain potentially profitable trading strategies.