Management Forecast Quality and Capital Investment Decisions
Name
Shroff_Management forecast.pdf
Size
376.67 KB
Format
Adobe PDF
Checksum (MD5)
1d916b634e190904862f65351415a67a
Author(s)
Goodman, Theodore H.
Neamtiu, Monica
Shroff, Nemit
White, Hal D.
Date Issued
July 2013
Journal
The Accounting Review
Publisher
American Accounting Association
Citation
Goodman, Theodore H., Monica Neamtiu, Nemit Shroff, and Hal D. White. “Management Forecast Quality and Capital Investment Decisions.” The Accounting Review 89, no. 1 (January 2014): 331–365.
Version
Author's final manuscript
Abstract
Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.2308/accr-50575
