Misleading Earnings Guidance

Cross-Sectional Determinants of the Impact of Management Cash Flow Forecasts

“…Cao et al (2009) document that managers may issue cash flow forecasts with unclear definition that are perceived to be less credible by the market. Hugon and Lin (2010) also find that one-third of management earnings forecasts are misleading (i.e., less accurate than the existing consensus analyst forecasts) and that investors and analysts discount such misleading forecasts.…”

Can Investors Fully Adjust for Known Biases in Manager Communications?

“…This failure is attributed to a lack of sufficient resources on the part of analysts. Herrmann and Thomas (2005) attribute this result to some analysts being less informed, while Abarbanell and Lehavy (2003) are silent as to why analysts do not fully adjust (also see Barth, et al 2010 andHugon andLin 2010). Bolton, et al (2006) propose that when investors are overconfident or inattentive, financially incentivized managers will benefit from opportunistically managing earnings.…”