Indicators Of Managers? Motivations For Issuing Forecasts Of Revenue And Earnings

Abstract

This paper examines potential motivations for managers to include a revenue forecast with their earnings forecast by studying the characteristics of firms that make an earnings forecast with or without a revenue forecast and the news of the earnings forecasts. The main test is a multivariate logit regression analysis that is performed on a large sample of firms that issue earnings forecasts, some of which are accompanied by a revenue forecast. In accordance with hypotheses, firms that forecast both earnings and revenue are smaller, have more external financing needs, are more likely to be from a high technology industry, and disclose earnings forecasts with better news than firms that forecast earnings only. On the other hand, in contrast to what is hypothesized, there is no significant difference between those two groups of firms with respect to industry concentration. Initially, firms that forecast both earnings and revenue are found to be younger and have higher earnings volatility. However, further analysis shows these potential determinants to be subsumed by other firm characteristics.