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Executives Tend to Offer Precise Forecasts to Reassure Investors

Executives Tend to Offer Precise Forecasts to Reassure Investors
Wall Street Journal
By Rheaa Rao
Published: June 1, 2017

Company executives tend to narrow the earnings forecast range to give the impression of control, a recent study in the Academy of Management Journal found.

The researchers analyzed the earnings guidance, stock performance and operations of nearly 3,000 publicly-traded U.S. companies from fiscal year 2005 to 2011. The average range for guidance was 8 cents, according to the study titled “Pseudo-Precision? Precise Forecasts and Impression Management in Managerial Earnings Forecasts.”

Executives narrowed the forecast range in response to the company’s performance and perceived market reaction. They were more likely to reduce the range when the guidance was revised to offer a more optimistic outlook, especially after the company missed earnings in the previous year.

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