Range has it: decoding the information content of forecast ranges

Tang, Michael; Zhang, Li

doi:10.1007/s11142-018-9441-7

Rev Account Stud

2018

DOI: 10.1007/s11142-018-9441-7

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Range has it: decoding the information content of forecast ranges

Michael Tang

Li Zhang

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Cited by 7 publications

(2 citation statements)

References 31 publications

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“…contained in range EPS forecasts, which are a less precise form of forecasts than point forecasts (e.g., Ciconte III et al, 2014;Tang et al, 2015;Tang and Zhang, 2018;Jensen and Plumlee, 2020). This stream of research highlights how users interpret range forecasts differently from point forecasts.…”

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confidence: 99%

“…I extend this literature by highlighting how forecast precision can moderate the negative effects of forecast uncertainty on investors’ judgements. In addition, my study contributes to the stream of research examining the information content contained in range EPS forecasts, which are a less precise form of forecasts than point forecasts (e.g., Ciconte III et al ., 2014; Tang et al ., 2015; Tang and Zhang, 2018; Jensen and Plumlee, 2020). This stream of research highlights how users interpret range forecasts differently from point forecasts.…”

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confidence: 99%

See 1 more Smart Citation

Analysts’ Earnings per Share Forecasts: The Effects of Forecast Uncertainty and Forecast Precision on Investor Judgements

Goh

2023

Abacus

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This study uses controlled experiments to investigate the joint effects of forecast uncertainty and forecast precision on investor judgements. It finds that forecast precision moderates the effects of forecast uncertainty on investors’ forecast reliability judgements such that the effects of forecast uncertainty on investors’ judgements of forecast reliability are more negative when an analyst's point earnings per share (EPS) forecast is rounded than when it is precise. In addition, the relationship between forecast precision and investors’ judgements of forecast reliability is mediated by investors’ perceptions of forecast attributes. The evidence also suggests that while forecast uncertainty exerts a negative effect on investment judgements, forecast precision does not play a role in mitigating these negative effects. Using a supplementary within‐participants experiment, the study further finds that investors may not be consciously aware of how forecast precision influences their judgements of forecast reliability.

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confidence: 99%

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confidence: 99%

Analysts’ Earnings per Share Forecasts: The Effects of Forecast Uncertainty and Forecast Precision on Investor Judgements

Goh

2023

Abacus

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Measuring News in Management Range Forecasts

Jensen

Plumlee

2020

Contemporary Accting Res

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Management earnings forecasts expressed as a range have become the most common form of quantitative management guidance. Traditionally, the proxy for the sign and the magnitude of the information conveyed by these forecasts—the forecast news—is calculated as the difference between a pre‐forecast earnings expectation and the midpoint of the forecasted range. We provide strong evidence that this traditional measure understates the amount of information conveyed by range forecasts. More importantly, we demonstrate that information conveyed by the upper and lower bounds of the forecasts can be used to improve the classification of forecasts as conveying good or bad news and for calculating the magnitude of that news. We rely on these findings to suggest alternative methods of classifying management range forecasts as conveying good versus bad news and to refine the calculation of forecast news to include the broader information set. Our analysis also suggests that the information conveyed by the range when the forecasts are bundled (issued concurrent with an earnings announcement) is significantly different than when forecasts are not bundled. Overall, our study documents the importance of incorporating range‐related information when assessing the sign and the magnitude of the information conveyed by management range forecasts.

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Management Faultlines and Management Forecasts*

Liu

Peteghem

2022

Contemporary Accting Res

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We examine whether management faultlines (i.e., dissimilar groupings among executives) are related to management forecast processes and outcomes. Management faultlines are formed based on the simultaneous alignment of senior executives' demographic characteristics (e.g., an MBA background, elite school education, gender, board experience, age, or tenure). We argue that management faultlines impede information sharing, create conflicts, and divert managerial attention away from common‐goal tasks. We hypothesize and find that management faultlines are associated with lower management forecast quality. Furthermore, the faultline effect is more pronounced when forecasting difficulty is high. In contrast, the faultline effect is mitigated when a firm nurtures a supportive and diverse workplace. In addition, we find that management forecast propensity and frequency are negatively associated with management faultlines. Overall, our findings suggest that management faultlines compromise management forecast processes and outcomes. In particular, since faultlines can arise as a company diversifies, boards should be aware of these unintended consequences and how they can be mitigated.

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Range has it: decoding the information content of forecast ranges

Cited by 7 publications

References 31 publications

Analysts’ Earnings per Share Forecasts: The Effects of Forecast Uncertainty and Forecast Precision on Investor Judgements

Analysts’ Earnings per Share Forecasts: The Effects of Forecast Uncertainty and Forecast Precision on Investor Judgements

Measuring News in Management Range Forecasts

Management Faultlines and Management Forecasts*

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