Review of Accounting Studies

, Volume 19, Issue 2, pp 628–660 | Cite as

Does the midpoint of range earnings forecasts represent managers’ expectations?

  • William CiconteIII
  • Marcus Kirk
  • Jennifer Wu Tucker
Article

Abstract

The accounting literature has used the midpoint of range forecasts in various research settings, assuming that the midpoint is the best proxy for managers’ earnings expectations revealed in range forecasts. We argue that given managers’ asymmetric loss functions regarding earnings surprises, managers are unlikely to place their true earnings expectations at the midpoint of range forecasts. We predict that managers’ true expectations are close to the upper bound of range forecasts. We find evidence consistent with these predictions in 1996–2010, especially in the recent decade. Despite their role as sophisticated information intermediaries, analysts barely unravel the pessimistic bias that managers embed in range forecasts. Furthermore, we find that the upper bound rather than the midpoint better represents investors’ interpretation of managers’ expectations in recent times. Our study cautions researchers to refine their research designs that use management range forecasts and sheds light on the role of financial analysts in the earnings expectations game.

Keywords

Range forecasts Management earnings forecasts Earnings guidance Voluntary disclosure 

JEL Classification

G11 G14 G24 

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • William CiconteIII
    • 1
  • Marcus Kirk
    • 1
  • Jennifer Wu Tucker
    • 1
  1. 1.Fisher School of AccountingUniversity of FloridaGainesvilleUSA

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