Investor Sentiment And Management Earnings Forecasts

In China’s capital market, the fluctuation of investor sentiment is large. Existing research shows that investor sentiment will lead to the listed company’s share price is a serious deviation from its fundamental value. Therefore, in the Chinese capital market, the management will take information disclosure policy to deal with the stock due to mis-pricing of investor sentiment. This issue need to be studied.Based on China A-Share listed companies during2005to2011, this paper investigates the influence of investor sentiment on the behaviors of management earnings forecasts. We find that during low-sentiment periods, managers are more likely to voluntarily disclose earnings forecasts and increase the precision of the forecasts. Managers’incentive of voluntary earnings forecast and the precision of the forecasts decreases with the level of investor sentiment. We also find that managers are rational and the attitude of management earnings forecasts varies with investor sentiment. During low-sentiment periods, managers prefer to issue optimistic forecasts to revise the over-pessimistic expectation of investors. Further study found that with rising investor sentiment, the precision of the good news in the earnings forecast was significantly higher, notice the attitude of pessimism significantly reduce, on the contrary, the precision of the bad news in a significant decrease in earnings forecast, notice the attitude of optimistic tendency significantly reduced.This research connect investor sentiment with the disclosure strategy of the listed companies, enrich and improve the literatures on the economic consequence of investor sentiment and the influencing factors of management earnings forecast, and provide some inspiration for future research. Otherwise this research is useful for us to know the disclosure strategy of the listed companies during different investor sentiments. And it can provide empirical evidence for regulators to further improve the earnings forecasts system in China capital market..