Does Management Forecast Drive Growth of the Firm?

Tomohiro Suzuki and Yusuke Takasu

No 172, Working Paper Series from Center for Japanese Business Studies (HJBS), Graduate School of Commerce and Management Hitotsubashi University

Abstract: The purpose of this study is to analyze the relation between ex ante high goals set by managers and ex post growth of those firms. We develop our hypothesis based on knowledge from goal setting theory and over-extension strategy and test the hypothesis that firms which issued aggressive management forecasts continuously in ex ante period grow higher in ex post period than firms that issued non-aggressive management forecasts. From our analyses, we find ex ante management forecast innovation (MFI) is positively related to ex post firm growth after controlling the endogeneity of MFI via two-stage least squares regression and propensity score matching. In particular, firms that issue aggressive management forecasts continuously achieve higher growth of earnings and stock price in the future than firms that have similar fundamentals except non-aggressive management forecasts. Recently, managerial myopia associated with management forecast disclosure has gotten increased attention around the world. However, based on the findings in prior Literature, it is not always supported that there is a relation between management forecast disclosure and managerial myopia. Especially, in Japan where management forecasts are effectively mandated, this study suggests there is a possibility that managers could prompt accumulation of intangible assets and achieve

Keywords: Management earnings forecasts; management forecast; innovation; management myopia; goal setting theory (search for similar items in EconPapers)
Pages: 34 pages
Date: 2013-06
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