CEO Overconfidence And Management Forecast Accurcy

With the rapid development of capital market and the maturity of investors,accounting information,which is dominated by historical information,is unable to meet investors' information needs.Forward-looking information is attracting more and more attention from investors.As a voluntary disclosure tool,management forecasts have been attracting the attention of investors and securities analysts all the time.By issuing management forecasts,managers can not only alleviate the information asymmetry and adjust market earning expectations,but also reduce stock pricing deviation and financing costs.However,whether management forecasts can take effect depends on the accuracy of management forecast.The higher the deviation is,the less accurate the management forecast is.Inaccurate management forecasts not only cannot promote the benign development of company,but will be counterproductive,causing market movements,damage of corporate reputation,and even litigation risk.For the factors affecting the accuracy of management forecasts,scholars have studied from the aspects of message type,forecast period,earnings volatility,company size and governance structure,etc.However,all the above studies are based on the rational economic man hypothesis.In recent years,some scholars introduced behavioral science into classical finance theory.And they discussed the important influence of irrational factors on managers'decision-making,especially managerial overconfidence.In fact,managerial overconfidence does affect the accuracy of management forecasts.This is because,although there is no doubt that the forecasts are based on the company's current situation,they have a great deal of subjectivity when estimating future profitability.Based on the same information,different managers may have different understandings and reactions,which leading to different management forecast accuracy.Based on behavior finance and Principal-agent theory,the paper empirically examines the relationship among CEO overconfidence,institutional investors ownership and accuracy of management forecasting,using data from China listed companies from 2010 to 2015.The study show that CEO overconfidence has negative effect on accuracy of managerial forecast.Institutional Investors Ownership can affect managerial forecast accuracy:pressure-resisting institutional investors can improve managerial forecast accuracy and stress-sensitive institutional investors can reduce managerial forecast accuracy.The paper reveals that CEO overconfidence and institutional investors ownership are important factors when study managerial forecast accuracy.