Industry Peer Competition and Management Earnings Forecasts

• In Event: Earnings Management and Forecasts and Operating Decisions

Abstract

This study examines the effect of industry peer competition on management earnings forecasts in the U.S. product markets. Our probit model estimations show that industry peer competition is positively associated with the likelihood and frequency of quarterly management earnings forecasts. Further, this effect is more pronounced for firms that are leaders in sales and for firms with R&D activities that use voluntary disclosure to reduce information asymmetry. Using a Heckman model, we also find that the likelihood of point forecasts versus range forecasts is negatively associated with industry peer competition. And this effect is more pronounced for firms that are leaders in sales and for firms with R&D activities. These findings suggest that firms with high proprietary costs are less likely to issue precise forecasts.

Authors

• Yuan Shi, Penn State University - Great Valley

• Dongfang Nie, The University of Texas Permian Basin

• Lin Chen, Valparaiso University