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Management Forecast Consistency


  • Accepted by Philip Berger. We gratefully acknowledge the helpful comments and suggestions made by an anonymous referee, Daniel Bens, Toine Bolhaar, Peter Chen, Kirill Novoselov, John Wei, and George Yang, as well as workshop participants at the University of Auckland, Hong Kong University of Science and Technology, Maastricht University, the University of Queensland, Tilburg University, and Xiamen University for their helpful comments. All data are available from sources identified in the paper.


We posit that management forecasts, which are predictable transformations of realized earnings without random errors, are more informative than unbiased forecasts, which manifest small but unpredictable errors, even if biased forecasts are less accurate. Consistent with this intuition, we find that managers who make consistent forecasting errors have a greater ability to influence investor reactions and analyst revisions, even after controlling for the effect of accuracy. This effect is more economically significant and statistically robust than that of forecast accuracy. More sophisticated investors and experienced analysts are found to have a better understanding of the benefits of consistent management forecasts.

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