Sequential Reporting Bias

Aghamolla, Cyrus; Guttman, Ilan; Petrov, Evgeny

doi:10.2139/ssrn.3741646

Cited by 2 publications

(1 citation statement)

References 73 publications

(92 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This leads the manager to bias both the forecast and reported earnings in order to reduce the error from the issued forecast. Aghamolla et al (2022) likewise examine misreporting incentives when managers are concerned with their reporting accuracy in a multi‐firm setting. The present setting differs from these studies as we consider the real effects of management forecasting on investment, whereas the manipulation in the aforementioned papers is accruals manipulation or reporting bias.…”

Section: Introductionmentioning

confidence: 99%

Managerial Myopia, Earnings Guidance, and Investment*

Aghamolla

Hashimoto

2022

Contemporary Accting Res

View full text Add to dashboard Cite

This study investigates the real effects of management communication, specifically of forecasts or earnings guidance, on investment. Managers can signal the strength of their projects through accuracy in their earnings guidance. This leads less accurate managers to distort their investments; the equilibrium investment strategy involves over‐investment when earnings exceed the forecast and under‐investment when earnings fall short. Moreover, we find that managers are pessimistic in their forecasts, which helps to explain the corresponding well‐documented empirical regularity. This downward bias increases the likelihood of investment manipulation but decreases the real loss from distortion. Interestingly, the over‐investment induced by earnings guidance helps to mitigate the classic under‐investment problem for a myopic manager with unobservable investment. Earnings guidance can therefore be value‐increasing when managerial myopia is severe.

show abstract

Section: Introductionmentioning

confidence: 99%