Terrorism activities and long-term annual management forecasts |
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| Institution: | 1. South China University of Technology, China;2. Kogod School of Business, American University, United States;3. Hong Kong Polytechnic University, Hong Kong;4. University of Central Florida, United States;5. Merrick School of Business, University of Baltimore, United States;1. Lynn Pippenger School of Accountancy, Muma College of Business, University of South Florida, 4202 East Fowler Ave., BSN 3403, Tampa, FL 33620, United States;2. Department of Accounting and Finance, Paul College of Business and Economics, University of New Hampshire, 11 Garrison Ave., Durham, NH 03824, United States;1. Department of Accountancy and Information Systems, Villanova University, United States;2. School of Accounting, Florida International University, United States;1. Nanyang Business School, Nanyang Technological University, Singapore;2. School of Business, Soochow University, Taiwan;3. NUS Business School, National University of Singapore, Singapore;4. School of Management, Xi’an Jiaotong University, Xianning West Road 28, 710049, China;1. BI Norwegian Business School, Nydalsveien 37, 0484 Oslo, Norway;2. SKEMA Business School, Université Côte d''Azur, 5 Quai Marcel Dassault, 92150 Suresnes, France;3. Université de Lorraine, Université de Strasbourg, CNRS, BETA, 13 Place Carnot, 54035 Nancy, France |
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| Abstract: | We study the effects of terrorist attacks on firms’ long-term annual management earnings forecasts bias. We find that the managers of firms located closer to the epicenters of attacks are more likely to issue optimistic long-term annual earnings forecasts relative to the managers of a control group of unaffected firms. The exposure effect is stronger for more severe terrorist events, and firms with more uncertain fundamentals and less geographic diversification. In addition, we document that managers’ forecast optimism intensifies for firms with stronger negative stock market reaction to the terrorist event, for CEOs with higher ability and for companies that are more likely to issue equity or engage in acquisitions following the terrorist event. Overall, our results are consistent with the idea that long-term annual earnings forecasts are used by managers to counterbalance the short-term pessimistic response to terrorist attacks. |
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| Keywords: | Management forecasts Forecast horizon Terrorist attacks Investor sentiment G14 G40 M41 |
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