The Effects of Organizational Structure on Management Earnings Forecast: Evidence from U.S. Multinational Firms

Abstract

Using a sample of U.S. multinational firms, we examine whether the internal reporting structure affects the accuracy of management earnings forecasts provided to external users. Focusing on internal information aggregation, we find that management earnings forecasts are less accurate when the internal information reported to the general manager is more aggregated. Further, we document that financial analysts’ reactions to management forecasts are weaker for firms with a high level of internal information aggregation. Our results are robust to a battery of sensitivity tests. Overall, our study suggests that the internal reporting structure plays an important role in shaping the corporate external financial disclosure behavior.