Management Sales Forecasts and Firm Market Power

Abstract

We investigate whether a firm’s market power within its product market affects management sales forecast behavior. Our examination of the relation between market power and management sales forecasts is motivated by the notion that sales forecasts differ from other types of forecasts because sales forecasts provide investors and competitors with a more transparent signal of a firm’s short-term demand expectations and its immediate actions in the product market than other forecasts. Thus, we first provide evidence consistent with sales forecasts containing unique information about future sales and evidence consistent with this information being related to competitor pricing and output decisions. We then find evidence that higher market power, proxied by excess margin, is associated with a higher likelihood of issuing sales forecasts after controlling for industry-level competition effects and earnings forecast behavior. Overall, our findings are consistent with higher-market-power firms being more willing to publicly disclose sales forecast information.

Effects of market orientation, innovation strategies and value-based pricing on market performance

“…In addition, the companies with higher profit projection and higher increase in sales projection presented a higher and more significant effect on performance (profitability <10%, average = 5.40; profitability >10%, average = 5.91 being p = 0.014) (percentage of sales increase projection <10%, average = 5.27; percentage of sales increase >10%, average = 6.03 being p = 0.000) which is in line with studies such as those by Acito et al (2019) and Chronopoulos and Siougle (2019).…”

“…Organizations that maintain bolder sales projection, however, consistent with their capabilities and aligned with the market, may better direct their actions and, consequently, obtain better results. When a company has a good sales projection, it provides more information about the customer and competitors, and in this way, it is possible for the company to have a better performance (Acito et al , 2019) and provide value-relevant information in stock returns prediction and investiment decisions (Chronopoulos and Siougle, 2019). A better information environment (e.g.…”

“…Logically, value-based prices to the customer imply higher prices that, in some specific sectors (such in this research, in exclusive furniture stores), may increase the financial value of sales. Sales projection is useful to investors, it is also potentially useful to competing firms making pricing and output decisions (Acito et al , 2019) and can be the basic determiner of bottom line earnings and operates toward the more efficient pricing of accruals prediction (Chronopoulos and Siougle, 2019).…”

Do socially responsible managers forecast sales more accurately?

“…Caylor (2010) uses discretionary revenues to test their use for avoiding reporting negative earnings surprises and finds evidence that managers use discretion in revenues that affects both accounts receivable and deferred revenues to report positive earnings surprises. Finally, Acito et al (2019) notice that over the past decade, managers have started JFRA 20,3/4 supplementing their earnings forecasts with sales estimates, presenting the differing amount of information content managers denote to sales forecasts.…”

“…We extend the research field of Lee (2017), who documents a positive association of social responsibility and EPS forecast accuracy, by incorporating into the analysis the sales figure instead of EPS figure, under the scope of prior research results for incremental information content of sales figures relative to EPS figure (Swaminathan and Weintrop, 1991;Acito et al, 2019). For this reason, we focus on sales figures provided as forecasts and released additionally to the EPS forecasts.…”