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The Roles that Forecast Surprise and Forecast Error Play in Determining Management Forecast Precision
Jong - Hag Choi, Seoul National University
Linda A. Myers, Texas A & M University
Yoonseok Zang, Singapore Management University
Yoonseok Zang, Singapore Management University
David A. Ziebart, University of Kentucky
ABSTRACT. Using a large sample of recent management earnings forecasts, we provide evidence that forecast precision is negatively associated with the magnitude of the forecast surprise and with the magnitude of the forecast error. Furthermore, we document that this negative association is stronger when the forecast is bad news than when it is good news, and when forecast errors are negative, consistent with greater liability concerns related to bad news forecasts and negative forecast errors, respectively. This study enables us to better understand the influence of management’s voluntary disclosure incentives on the precision of their earnings forecasts.
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