Cost Stickiness and Management’s Issuance of Earnings Forecasts

Abstract

This study investigates how firms’ asymmetric cost behavior affects managers’ decision to issue earnings forecasts. Cost stickiness reflects managers’ deliberate resource adjustment decisions and increases information asymmetry between managers and corporate outsiders. Therefore, as cost stickiness increases, managers are more likely to convey their private information to public through earnings forecasts to reduce information asymmetry. Consistent with our prediction, we find a positive association between cost stickiness and managers’ propensity to issue earnings forecasts, and this positive association is more pronounced for long-horizon forecasts than short-horizon forecasts.