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Determinants Of The Bias And Inaccuracy Of Management Earnings Forecasts

Author

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  • Andrew A. Anabila
  • EunYoung Whang

Abstract

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.

Suggested Citation

  • Andrew A. Anabila & EunYoung Whang, 2014. "Determinants Of The Bias And Inaccuracy Of Management Earnings Forecasts," Accounting & Taxation, The Institute for Business and Finance Research, vol. 6(1), pages 1-12.
    • Handle: RePEc:ibf:acttax:v:6:y:2014:i:1:p:1-12
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    Cited by:

    1. Zhen-Jia Liu & Yi-Shu Wang, 2015. "The Relationship between Governance and Earnings Management: An Advanced Empirical Study of Non-profit Hospitals in Taiwan," Accounting and Finance Research, Sciedu Press, vol. 4(2), pages 1-90, May.

    More about this item

    Keywords

    Management Forecasts; Bias; Inaccuracy; Determinants; Litigation Costs; Safe Harbor; Munificence; Dynamism; Concentration. All Data Are Available from the Public Sources Mentioned;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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