Public Forecasts, Internal Projections, and Corporate Financial Policy
78 Pages Posted: 1 Jun 2020 Last revised: 30 Aug 2022
Date Written: March 4, 2020
Abstract
How important are strategic public forecasting incentives relative to internal projections? We compare confidentially surveyed internal financial projections with public forecasts using data from Japan, where both are mandatory. Public forecasts tend to be systematically pessimistic relative to internal projections and vary when managers face more shareholder pressure and financial constraints. Although public forecasts do not affect realized investments after controlling for internal projections, the public-internal forecast gap predicts higher stock returns, earnings surprises, fewer seasoned equity offerings, stock repurchases, and higher managerial compensation. Finally, we discuss the implications of our findings for the literature on disclosure and managerial expectations.
Keywords: Managerial Guidance, Strategic Disclosure, Market Efficiency, Corporate Governance
JEL Classification: D83, E22, G14, G31, G34, G41
Suggested Citation: Suggested Citation