Are more able managers good future tellers? Learning from Japan |
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| Institution: | 1. Saitama University, 225, Shimookubo, Sakura-ku, Saitama-shi, Saitama 338-8570, Japan;2. Hitotsubashi University, 2-1, Naka, Kunitachi-shi, Tokyo 186-8601, Japan;3. The University of Tokyo, 7-3-1, Hongo, Bunkyo-ku, Tokyo 113-0033, Japan;1. School of Business, University of Connecticut, 2100 Hillside Rd., Unit 1041A, Storrs, CT 06269, United States;2. College of Business, Colorado State University, 501 W. Laurel St., Fort Collins, CO 80523, United States;1. Department of Accounting, Box 8113, North Carolina State University, Raleigh, NC 27695-8113, United States;2. Department of Management, Ca’ Foscari University, Cannaregio 873, 30121 Venice, Italy;1. School of Accountancy, Central University of Finance and Economics, Beijing 100081, China;2. SKEMA Business School, 99 Ren’ai Road, Suzhou 215123, China;1. Oregon State University, United States;2. Purdue University, United States;1. D’Amore-McKim School of Business Northeastern University, United States;2. College of Business Administration University of Nebraska – Lincoln, United States;3. Farmer School of Business Miami University, United States |
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| Abstract: | Baik et al. (2011) find that high-ability managers in the U.S. are more likely to issue accurate management earnings forecasts. Focusing on Japan, where management earnings forecasts are effectively mandated, we extend the literature by exploring (1) whether the relationship between managerial ability and forecast accuracy is unique to the U.S. disclosure system, where management forecasts are voluntary, and (2) how high-ability managers increase their forecast accuracy. We find that managerial ability is negatively associated with forecast errors based on initial forecasts, suggesting that high-ability managers are more likely to issue accurate forecasts at the beginning of the fiscal year. We then show that high-ability managers are less likely to revise their initial earnings forecasts and less likely to use earnings management to improve the accuracy of their earnings forecasts. Our findings show that, while high-ability managers are more likely to issue accurate initial management forecasts, low-ability managers are more likely to revise their forecasts and conduct earnings management to reduce their forecast errors. |
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| Keywords: | Managerial ability Management earnings forecast Forecast accuracy Earnings management M41 |
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