Does the manager matter to users of management earnings forecasts?

Abstract

Prior research provides evidence on how manager attributes affect characteristics of management earnings forecasts and how firm characteristics affect market participants’ perception of the credibility of management earnings forecasts. Using a manager-firm matched panel dataset, this thesis examines whether the perceived credibility of management earnings forecasts, as measured by investors’ and analysts’ responses to management earnings forecasts news, are influenced by: (1) the forecasting track records of individual managers, and (2) manager attributes. The results indicate that, overall, investors’ responses to management earnings forecasts vary with the firms’ forecasting track records but not with the forecasting track records of individual managers or with manager attributes. The results indicate that analysts’ responses to management earnings forecasts are positively associated with managers’ individual forecasting track records. Results also indicate that analysts react less strongly to management earnings forecasts issued by CEOs with CFO experience, and react more strongly to management earnings forecasts issued by managers who are also the chairperson. Overall, the results suggest that analysts, being more sophisticated users, consider both manager- and firm-specific characteristics in their assessments of management earnings forecasts. This thesis contributes to the literature by providing a more comprehensive understanding of whether manager-specific forecasting track records and manager attributes matter to investors and analysts. The findings reported in this thesis may help to inform the communicators (firms and managers) of management earnings forecasts about what matters to users, which may help them vary their forecasting behaviours. Results may also help inform boards of directors about what matters to users of management earnings forecasts and help the board better monitor managers in this regard, and, inform observers such as regulators and commentators in providing signals about what matters to users in terms managers’ forecasting behaviours and attributes.