BokHyeon Baik
Michigan State University
Guohua Jiang
Peking University
Abstract: To test whether management issues earnings forecasts to dampen analysts earnings expectations, we empirically examine the change in analysts consensus forecasts of earnings around management forecast date. In addition, we investigate what firm characteristics are related to the pessimistic bias in management forecasts. Our results show that, compared to a control sample, our management forecast sample experienced a dramatic increase in the percentage of firms meeting or beating analysts earnings expectations after management issued an earnings forecast. Furthermore, we find that firms with a high growth prospect, a high institutional ownership, and a long string of meeting or beating expectations tend to forecast earnings pessimistically, and thus induced a lower level of analysts consensus to finally meet or beat. Overall, our findings are consistent with Bartov, Givoly and Hayn (2000) and Matsumoto (2002).
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