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| Author: | Baginski, S.P. Hassell, J.M. Kimbrough, M.D. |
| Title: | Why do managers explain their earnings forecasts? |
| Journal: | Journal of Accounting Research
2004 : MAR, VOL. 42:1, p. 1-29 |
| Index terms: | Managers Executives Earnings Forecasting Stocks Prices Finance |
| Language: | eng |
| Abstract: | Managers often explain their earnings forecasts (here as: e-f. for 'forecasts' as: f.) by linking forecasted performance to their internal actions and the actions of parties external to the firm. These attributions (here as: a.) potentially aid investors to interprete management f. by confirming known relationships btw. a. and profitability or by identifying additional causes that investors should consider when forecasting earnings. This paper investigates why managers choose to provide a. with their f. and whether the a. are related to security price reactions to management e-f. Using a sample of 951 management e-f. issued from 1993 to 1996, it is found that a. are more likely for larger firms, less likely for firms in regulated industries, less likely for f. issued over longer horizons, more likely for bad news forecasts, and more likely for f. that are maximum type. Furthermore, a. are associated with greater absolute price reactions to management f., more negative price reactions to management f., and a greater price reaction per dollar of unexpected earnings. |
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