Management Earnings Forecasts and Macroeconomic News

• In Event: DSFI Session 1

Abstract

A manager’s information advantage is generally thought to reside at the firm-level as opposed to the macroeconomic-level. However, corporate earnings are heavily influenced by the macroeconomic state. Therefore, if a manager is to communicate earnings expectations efficiently, consideration must be given to how changes in the macroeconomic state will affect upcoming earnings. In this study, we find that the probability that managers issue earnings guidance is increasing in the amount of macroeconomic news, either positive or negative. Although managers are efficient at incorporating positive macroeconomic news into their guidance, they underestimate the impact of negative news. To examine the variation across managers, we develop a measure of their earnings guidance sensitivity to macroeconomic news. We find that more macro-sensitive managers enjoy greater attention to their earnings guidance from analysts. Further, we find that these managers make more efficient investments, suggesting consistency between external and internal implications of macroeconomic responsiveness.

Authors

• Stephen A Hillegeist, Arizona State University - Tempe

• Artur Hugon, Arizona State University - Tempe

• An-Ping Lin, Arizona State University - Tempe