Corporate Managers' Earnings Forecasts and Symmetrical Adjustments of Market Expectations

Abstract

Studies of earnings forecasts by corporate managers have focused on various issues. Early studies were concerned with the accuracy of such forecasts (e.g., Copeland and Marioni [1972], McDonald [1973], and Ruland [1978], among others). These were followed by studies of the information content of management forecasts (e.g., Foster [1973] and Patell [1976]). Given the evidence on the information content of such forecasts, Gonedes, Dopuch, and Penman [1976] explored various implications of mandatory versus voluntary dissemination of information about firms, particularly earnings forecasts. Finally, Penman [1978; 1980] evaluated the capacity of the unregulated market for management forecasts to reveal fully private information, including both good news and bad news. He concluded that full or symmetric disclosure does not appear to result, and that, on average, firms with good news appear more willing to reveal their forecasts. Broad economic theories attribute diverse motivations (often under conflicting assumptions) to insider-managers either to suppress (for personal gain) or reveal voluntarily private information (e.g., Spence