Investor sentiment and management earnings forecast bias |
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| Authors: | Helen Hurwitz |
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| Affiliation: | John Cook School of Business, Saint Louis University, Saint Louis, MO63108, USA |
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| Abstract: | This study investigates whether investor sentiment is associated with behavioral bias in managers’ annual earnings forecasts that are generally issued early in the year when uncertainty is relatively high. I provide evidence that management earnings forecast optimism increases with investor sentiment. Furthermore, I find that managers’ annual earnings forecasts are more pessimistic during low‐sentiment periods than during normal‐sentiment periods. Since managers lack incentives to further deflate stock prices during a low‐sentiment period, this evidence indicates that sentiment‐related management earnings forecast bias is likely to be unintentional. In addition, I find that the relationship between management earnings forecast bias and investor sentiment is stronger for firms with higher uncertainty, consistent with investor sentiment having a greater influence on management earnings forecasts when uncertainty is higher. |
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| Keywords: | investor sentiment management earnings forecast bias managerial behavioral bias |
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