Business cycle and management earnings forecasts

Haiyan Jiang, Ahsan Habib, Rong Gong

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)

Abstract

This study examines the effects of the economic cycle on the properties of management earnings forecasts. Although a large volume of accounting literature examines the determinants of managerial earnings forecasts, the properties of such forecasts, and the response of market participants to earnings forecasts (Cameron 1986; King etal., 1990; Hirst etal., 2008), research on management earnings forecasting incentivized by macro-economic factors has received scant empirical investigation. We use the National Bureau of Economic Research economic cycle definition to operationalize economic recession, and consider some commonly used management earnings forecast characteristics, including forecast likelihood, forecast frequency, forecast error, forecast pessimism, and forecast precision. We find that the likelihood of providing management earnings forecasts and frequency of forecasts increases during economic recession. We also find that economic recession is positively associated with forecast error, but negatively associated with forecast precision. Our findings suggest macro-economic factors as an important determinant of management earnings forecasts properties.

Original languageEnglish
Pages (from-to)279-310
Number of pages32
JournalAbacus
Volume51
Issue number2
DOIs
Publication statusPublished - Jun 2015
Externally publishedYes

Keywords

  • Business cycle
  • Litigation risk
  • Management earnings forecasts

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