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The use of management forecasts to dampen analysts' expectations by Chinese listed firms

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  • Huang, Wei

Abstract

This paper studies the use of management earnings forecasts (MEF) to dampen analysts' expectations, i.e. expectation management, by Chinese listed companies. We reveal several important findings: Firstly, information asymmetry is positively associated with the use of MEF to dampen analysts' expectations. State control has been found to moderate this relationship. Secondly, dampening analysts' expectations using MEF leads to negative stock return reactions and downward analysts' forecast revisions. Thirdly, the effectiveness of “pre-empting bad news through MEF” appears mixed and dependent on the information content of MEF and measures of actual earnings surprises. Finally, firms that disclose MEF are found to engage in more earnings management to meet the forecasts than firms that do not.

Suggested Citation

  • Huang, Wei, 2016. "The use of management forecasts to dampen analysts' expectations by Chinese listed firms," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 263-272.
    • Handle: RePEc:eee:finana:v:45:y:2016:i:c:p:263-272
    DOI: 10.1016/j.irfa.2016.04.006
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    Cited by:

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    2. Huang, Wei & Goodell, John W. & Zhang, Hong, 2019. "Pre-merger management in developing markets: The role of earnings glamor," International Review of Financial Analysis, Elsevier, vol. 65(C).
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    4. Hou, Jianlei & Zhao, Shangmei & Yang, Haijun, 2020. "Individual analysts, stock return synchronicity and information efficiency," International Review of Financial Analysis, Elsevier, vol. 71(C).
    5. Nathan Zhenghang Zhu & Kun Tracy Wang & Mark Wilson, 2022. "The Effect of Conditional Management Earnings Forecast Mandates on Voluntary Disclosure and Analyst Forecast Properties," Abacus, Accounting Foundation, University of Sydney, vol. 58(3), pages 479-522, September.

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    More about this item

    Keywords

    Management earnings forecast; Analyst forecast; Post-earnings announcement abnormal return; Earnings management; China;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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