Analyst Confirmation of Management Forecast Credibility During a Global Crisis

Abstract

This paper examines whether textual management forecast commonalities that arise in a global crisis setting relate to ex post forecast accuracy, and whether subsequent analyst revisions confirm the credibility relevance of these commonalities. This approach is motivated by two conclusions. First, extant studies focus on general commonalities such as external (vs. internal) attributions, instead of specific subsets of these regularities that have the capacity to affect many management forecasts at the same time. Second, studies seldom focus on global crisis periods, although they acknowledge that those periods serve as catalysts for creating measures to assess management forecast credibility. After arguing that sales forecasts are most directly affected by global crisis conditions, I predict and find that management who attribute their sales forecasts (in full or in part) to the global crisis issue forecasts that are more accurate ex post. This finding is not consistent with the common assumption that external attributions are not based on skill and effort, and consistent with theoretical models of signaling and management ability. Furthermore, the ‘crisis’ attribution gives rise to a dictionary-free alternative to the linguistic tone measure which is related to ex post forecast accuracy. Analyst confirmation of the credibility relevance of these two measures suggests that they are useful for future research. Policy makers and regulators should find these results interesting as they offer new ways to improve the comparability of management forecasts.