The use of management forecasts to dampen analysts' expectations by Chinese listed firms

Wei Huang

doi:10.1016/j.irfa.2016.04.006

The use of management forecasts to dampen analysts' expectations by Chinese listed firms

Wei Huang

Department of Finance, Accounting and Economics

Research output: Journal Publication › Article › peer-review

9 Citations (Scopus)

Abstract

This paper studies the use of management earnings forecasts (MEF) to dampen analysts' expectations, i.e. expectation management, by Chinese listed companies. We reveal several important findings: Firstly, information asymmetry is positively associated with the use of MEF to dampen analysts' expectations. State control has been found to moderate this relationship. Secondly, dampening analysts' expectations using MEF leads to negative stock return reactions and downward analysts' forecast revisions. Thirdly, the effectiveness of "pre-empting bad news through MEF" appears mixed and dependent on the information content of MEF and measures of actual earnings surprises. Finally, firms that disclose MEF are found to engage in more earnings management to meet the forecasts than firms that do not.

Original language	English
Pages (from-to)	263-272
Number of pages	10
Journal	International Review of Financial Analysis
Volume	45
DOIs	https://doi.org/10.1016/j.irfa.2016.04.006
Publication status	Published - 1 May 2016

Keywords

Analyst forecast
China
Earnings management
Management earnings forecast
Post-earnings announcement abnormal return

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.irfa.2016.04.006

Cite this

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abstract = "This paper studies the use of management earnings forecasts (MEF) to dampen analysts' expectations, i.e. expectation management, by Chinese listed companies. We reveal several important findings: Firstly, information asymmetry is positively associated with the use of MEF to dampen analysts' expectations. State control has been found to moderate this relationship. Secondly, dampening analysts' expectations using MEF leads to negative stock return reactions and downward analysts' forecast revisions. Thirdly, the effectiveness of {"}pre-empting bad news through MEF{"} appears mixed and dependent on the information content of MEF and measures of actual earnings surprises. Finally, firms that disclose MEF are found to engage in more earnings management to meet the forecasts than firms that do not.",

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KW - Management earnings forecast

KW - Post-earnings announcement abnormal return

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The use of management forecasts to dampen analysts' expectations by Chinese listed firms

Abstract

Keywords

ASJC Scopus subject areas

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