Pseudo-precision? Precise forecasts and impression management in managerial earnings forecasts

Published on Jun 1, 2017in Academy of Management Journal
· DOI :10.5465/AMJ.2014.0304
Mathew L. A. Hayward12
Estimated H-index: 12
(Monash University),
Markus Fitza12
Estimated H-index: 12
(Frankfurt School of Finance & Management)
Sources
Abstract
We examine earnings guidance precision as a mechanism of organization impression management (OIM) and, specifically, suggest that strategic leaders use more precise earnings forecasts as an OIM tactic to convey a greater sense of authority and control over organizational performance after material organizational setbacks. Contributing to the OIM literature, we argue that the use of more precise judgment makes use of different psychological mechanisms compared to kinds of OIM that have been previously studied. The results presented here suggest that (a) OIM is an important motivation for more precise earnings forecasts, (b) precision as an OIM tactic is more likely to arise when managers convey impressions of brighter performance prospects, and (c) investors generally respond favorably to the tactic.
📖 Papers frequently viewed together
2011
References65
Newest
#1Paul Hribar (UI: University of Iowa)H-Index: 26
#2Holly Yang (Singapore Management University)H-Index: 9
This paper examines how overconfidence affects the properties of management forecasts. Using both the “over-optimism” and “miscalibration” dimensions of overconfidence to generate our predictions, we examine three research questions. First, we examine whether overconfidence increases the likelihood of issuing a forecast. Second, we examine whether overconfidence increases the amount of optimism in management forecasts. Third, we examine whether overconfidence increases the precision of the forec...
174 CitationsSource
#1Scott A Graffin (UGA: University of Georgia)H-Index: 1
#2Jerayr Haleblian (UCR: University of California, Riverside)H-Index: 18
Last. Jason Kiley (OSU: Oklahoma State University–Stillwater)H-Index: 3
view all 3 authors...
Drawing on expectancy violation theory, we explore the effects of anticipatory impression management in the context of acquisitions. We introduce impression offsetting, an anticipatory impression management technique organizational leaders employ when they expect a focal event will negatively violate the expectations of external stakeholders. Accordingly, in these situations, organizational leaders will announce the focal event contemporaneously with positive, but unrelated information. We predi...
48 CitationsSource
#1Alexandra Jerez-Fernandez (Princeton University)H-Index: 1
#2Ashley N. Angulo (UCLA: University of California, Los Angeles)H-Index: 1
Last. Daniel M. Oppenheimer (UCLA: University of California, Los Angeles)H-Index: 29
view all 3 authors...
64 CitationsSource
#1Malia F. Mason (Columbia University)H-Index: 25
#2Alice Lee (Columbia University)H-Index: 12
Last. Daniel R. Ames (Columbia University)H-Index: 29
view all 4 authors...
Abstract People habitually use round prices as first offers in negotiations. We test whether the specificity with which a first offer is expressed has appreciable effects on first-offer recipients' perceptions and strategic choices. Studies 1a–d establish that first-offer recipients make greater counteroffer adjustments to round versus precise offers. Study 2 demonstrates this phenomenon in an interactive, strategic exchange. Study 3 shows that negotiators who make precise first offers are assum...
59 CitationsSource
We estimate linguistic‐based classification models of deceptive discussions during quarterly earnings conference calls. Using data on subsequent financial restatements and a set of criteria to identify severity of accounting problems, we label each call as “truthful” or “deceptive.” Prediction models are then developed with the word categories that have been shown by previous psychological and linguistic research to be related to deception. We find that the out‐of‐sample performance of models ba...
263 CitationsSource
#1James D. Westphal (UM: University of Michigan)H-Index: 51
#2David L. Deephouse (U of A: University of Alberta)H-Index: 27
In this study we consider how and when interpersonal relations between chief executive officers (CEOs) and journalists can influence the content of journalists' reporting about corporate leaders and their firms. Specifically, we draw from the social psychological literature on interpersonal influence and social exchange to suggest (i) how the disclosure of relatively low corporate earnings may prompt the CEO to engage in ingratiatory behavior toward journalists, and (ii) how such behavior may be...
88 CitationsSource
#1Daniel Kahneman (Princeton University)H-Index: 149
Daniel Kahneman, recipient of the Nobel Prize in Economic Sciences for his seminal work in psychology challenging the rational model of judgment and decision making, is one of the world's most important thinkers. His ideas have had a profound impact on many fields - including business, medicine, and politics - but until now, he has never brought together his many years of research in one book. In "Thinking, Fast and Slow", Kahneman takes us on a groundbreaking tour of the mind and explains the t...
10.5k Citations
#1Ralph Chami (IMF: International Monetary Fund)H-Index: 28
#2Dalia Hakura (IMF: International Monetary Fund)H-Index: 17
The paper examines the slowdown of lending by large U.S. banks over the period 2007Q3 - 2009Q2, focusing on: (i) whether capital or liquidity was the binding constraint; (ii) factors influencing banks’ decision to hold capital; and (iii) their pricing behavior. Using quarterly data for the largest U.S. banks, the paper finds that capital, rather than liquidity, constrained lending. Banks took actions to increase capital by slowing lending and raising profit margins, not fully passing through the...
11 Citations
#1James D. Westphal (UM: University of Michigan)H-Index: 51
#2Melissa E. Graebner (University of Texas at Austin)H-Index: 12
Our theory and findings suggest that relatively negative stock analyst appraisals prompt corporate leaders to increase externally visible dimensions of board independence without actually increasing board control of management. We also consider how relatively negative analyst appraisals may prompt impression management in CEO communications with analysts, whereby CEOs attest to their boards' tendency to monitor and control management on behalf of shareholders. We also find that increases in form...
183 CitationsSource
#1Costas Lapavitsas (SOAS, University of London)H-Index: 21
The current crisis is an outcome of the financialisation of contemporary capitalism. It arose in the USA because of the enormous expansion of mortgage lending, including to the poorest layers of the working class. It became general because of the trading of debt by financial institutions. These phenomena are integral to financialisation. During the last three decades large enterprises have turned to open markets to obtain finance, forcing banks to seek alternative sources of profit. One avenue h...
277 CitationsSource
Cited By11
Newest
#1Niamh Brennan (UCD: University College Dublin)H-Index: 32
#2Victoria C. Edgar (University of Agder)
Last. Sean Bradley Power (Toulouse Business School)H-Index: 1
view all 3 authors...
Abstract null null Profit warnings (large negative earnings surprises) are important corporate reporting documents for delivering bad news and a distinctive corporate communication genre. The 2020 COVID-19 exogenous shock provides a unique worldwide crisis context for company disclosure of bad news. null The research develops a genre-based typology/analytical framework for assessing COVID-19 profit warnings’ quality comprising: (1) Four profit warning/forecast quality characteristics and (2) Eig...
Source
#1Clarence Goh (Singapore Management University)H-Index: 4
In this study, I use an experiment to investigate the joint effects of forecast precision and forecast uncertainty on investors’ judgments of the reliability of analysts’ EPS forecasts. Results indicate that participants’ judgments of forecast reliability are not influenced by forecast uncertainty when precise analyst EPS forecasts are presented. In contrast, participants’ judgments of forecast reliability are higher when forecast uncertainty is low than when it is high when round forecasts are ...
Source
#1Pengfei Ye (VT: Virginia Tech)H-Index: 6
#2Jonathan O'Brien (NU: University of Nebraska–Lincoln)H-Index: 15
Last. Iftekhar Hasan (Fordham University)H-Index: 82
view all 4 authors...
Although innovation can be a critical source of competitive advantage, research has found that debt can erode management’s willingness to invest in R&D. In this article, we employ a stakeholder bar...
1 CitationsSource
#1Christian Schumacher (WU: Vienna University of Economics and Business)H-Index: 3
We explore the effects of chief executive officers’ (CEOs’) personal dominance—an idiosyncratic character trait strongly associated with a desire for influence and control—on two fundamental organizational design decisions: the CEO’s span of control (1) and her delegation of responsibilities as reflected in the appointment of a chief operating officer (COO) (2). Linking three original measures of CEO dominance based on quarterly earnings calls with manually collected data on span of control and ...
Source
#1Veroniek Collewaert (Katholieke Universiteit Leuven)H-Index: 13
#2Tom Vanacker (University of Exeter)H-Index: 18
Last. Dries Bourgois (Katholieke Universiteit Leuven)H-Index: 1
view all 4 authors...
Abstract Drawing on impression management and social exchange theory, we examine the use of positively biased forecasts by (non-)founder-CEOs as an impression management tactic vis-a-vis their existing investors. Contrary to their non-founder counterparts, founder-CEOs identify more with the venture they founded and, therefore, experience greater instrumental and affective concerns about the long-term relationship with their investors. Consequently, we hypothesize that founder-CEOs will strategi...
2 CitationsSource
#1Don A. Moore (University of California, Berkeley)H-Index: 53
#2Derek Schatz (Accenture)H-Index: 1
Overconfident people should be surprised that they are so often wrong. Are they? Three studies examined the relationship between confidence and surprise in order to shed light on the psychology of overprecision in judgment. Participants reported ex-ante confidence in their beliefs, and after receiving accuracy feedback, they then reported ex-post surprise. Results show that more ex-ante confidence produces less ex-post surprise for correct answers; this relationship reverses for incorrect answer...
1 CitationsSource
#1Derek Schatz (University of California, Berkeley)H-Index: 1
#2Don A. Moore (University of California, Berkeley)H-Index: 53
Overconfident people should be surprised that they are so often wrong. Are they? Three studies examined the relationship between confidence and surprise in order to shed light on the psychology of overprecision in judgment. Participants reported ex-ante confidence in their beliefs, and after receiving accuracy feedback, they then reported ex-post surprise. Results show that more ex-ante confidence produces less ex-post surprise for correct answers; this relationship reverses for incorrect answer...
Source
#1Jorge Pena-Marin (UC: University of Cincinnati)H-Index: 2
#2Ruomeng Wu (UC: University of Cincinnati)H-Index: 1
1 CitationsSource
#1Valentina BerettaH-Index: 2
#2Chiara DemartiniH-Index: 13
Last. Sara TruccoH-Index: 4
view all 3 authors...
Purpose The integrated reporting framework seeks to connect a firm’s financial and non-financial performance in a single report by displaying how different forms of capital contribute to the firm’s value creation. Drawing on impression management and incremental information approaches, the purpose of this paper is to examine how the content and semantic properties of intellectual capital disclosure (ICD) found in integrated reports is associated with firms’ performance. Design/methodology/approa...
28 CitationsSource
#1Andreas König (University of Passau)H-Index: 9
#2Jan Mammen (FAU: University of Erlangen-Nuremberg)H-Index: 3
Last. Albrecht Enders (International Institute for Management Development)H-Index: 11
view all 5 authors...
We combine literature on rhetoric and socially situated sensemaking to illuminate the challenges that emerge when chief executive officers (CEOs) try to influence infomediaries by using metaphorica...
15 CitationsSource