Managerial discretion over initial earnings forecasts

2015 Fiscal Year Final Research Report

• Project/Area Number: 25380599
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Multi-year Fund
• Section: 一般
• Research Field: Accounting
• Research Institution: The University of Tokyo (2015); Kobe University (2013-2014)
• Principal Investigator: SHUTO Akinobu 東京大学, 大学院経済学研究科, 准教授 (60349181)
• Project Period (FY): 2013-04-01 – 2016-03-31
• Keywords: 会計学 / 経営者予想利益 / 利益調整

Outline of Final Research Achievements

The main purpose of this study is to investigate managerial discretion over managers’ initial management forecasts issued concurrently with earnings announcements. The unique reporting system for management forecasts in Japan, systematic bundled management forecasts, creates an earnings benchmark (i.e., forecast innovations) to which earnings management research has not paid much attention. First, we find that managers engage in forecast management through discretionary forecasts to avoid negative forecast innovations. Second, we reveal that 1) firms that avoid negative forecast innovations enjoy a higher return even when they use discretionary forecasts to do so and that 2) the relation between forecast innovations and return is S-shaped. These results suggest that the market rewards firms that achieve a forecast innovation benchmark, providing a sound rationale for managers’ use of forecast management.

Free Research Field

会計学