We examine how the market's ability to assess the truthfulness of management earnings forecasts affects how managers bias their forecasts, and we evaluate whether the market's response to management forecasts is consistent with it identifying predictable forecast bias. We find managers' willingness to misrepresent their forwardlooking information as a function of their incentives varies with the market's ability to detect misrepresentation. We examine incentives induced by the litigation environment, insider trading activities, firm financial distress, and industry concentration. With regard to the stock price response to forecasts, we find the market varies its response with the predictable bias in the forecast. The efficiency of the market's response, however, varies with the forecast news.
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1 October 2005
Research Article|
October 01 2005
Credibility of Management Forecasts
Jonathan L. Rogers;
Jonathan L. Rogers
aUniversity of Chicago.
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Phillip C. Stocken
Phillip C. Stocken
bDartmouth College.
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Online ISSN: 1558-7967
Print ISSN: 0001-4826
American Accounting Association
2005
The Accounting Review (2005) 80 (4): 1233–1260.
Citation
Jonathan L. Rogers, Phillip C. Stocken; Credibility of Management Forecasts. The Accounting Review 1 October 2005; 80 (4): 1233–1260. https://doi.org/10.2308/accr.2005.80.4.1233
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