Management Forecast Quality and Capital Investment Decisions
Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality o...
| Main Authors: | , , , |
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| Other Authors: | |
| Format: | Article |
| Language: | en_US |
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American Accounting Association
2014
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| Online Access: | http://hdl.handle.net/1721.1/88127 https://orcid.org/0000-0002-3472-5443 |
| _version_ | 1826194728434008064 |
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| author | Goodman, Theodore H. Neamtiu, Monica Shroff, Nemit White, Hal D. |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Goodman, Theodore H. Neamtiu, Monica Shroff, Nemit White, Hal D. |
| author_sort | Goodman, Theodore H. |
| collection | MIT |
| description | Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms. |
| first_indexed | 2024-09-23T10:00:54Z |
| format | Article |
| id | mit-1721.1/88127 |
| institution | Massachusetts Institute of Technology |
| language | en_US |
| last_indexed | 2024-09-23T10:00:54Z |
| publishDate | 2014 |
| publisher | American Accounting Association |
| record_format | dspace |
| spelling | mit-1721.1/881272022-09-26T15:10:05Z Management Forecast Quality and Capital Investment Decisions Goodman, Theodore H. Neamtiu, Monica Shroff, Nemit White, Hal D. Sloan School of Management Shroff, Nemit Corporate investment decisions require managers to forecast expected future cash flows from potential investments. Although these forecasts are a critical component of successful investing, they are not directly observable by external stakeholders. In this study, we investigate whether the quality of managers' externally reported earnings forecasts can be used to infer the quality of their corporate investment decisions. Relying on the intuition that managers draw on similar skills when generating external earnings forecasts and internal payoff forecasts for their investment decisions, we predict that managers with higher quality external earnings forecasts make better investment decisions. Consistent with our prediction, we find that forecasting quality is positively associated with the quality of both acquisition and capital expenditure decisions. Our evidence suggests that externally observed forecasting quality can be used to infer the quality of capital budgeting decisions within firms. 2014-06-30T15:19:37Z 2014-06-30T15:19:37Z 2013-07 2012-01 Article http://purl.org/eprint/type/JournalArticle 0001-4826 1558-7967 http://hdl.handle.net/1721.1/88127 Goodman, Theodore H., Monica Neamtiu, Nemit Shroff, and Hal D. White. “Management Forecast Quality and Capital Investment Decisions.” The Accounting Review 89, no. 1 (January 2014): 331–365. https://orcid.org/0000-0002-3472-5443 en_US http://dx.doi.org/10.2308/accr-50575 The Accounting Review Creative Commons Attribution-Noncommercial-Share Alike http://creativecommons.org/licenses/by-nc-sa/4.0/ application/pdf American Accounting Association SSRN |
| spellingShingle | Goodman, Theodore H. Neamtiu, Monica Shroff, Nemit White, Hal D. Management Forecast Quality and Capital Investment Decisions |
| title | Management Forecast Quality and Capital Investment Decisions |
| title_full | Management Forecast Quality and Capital Investment Decisions |
| title_fullStr | Management Forecast Quality and Capital Investment Decisions |
| title_full_unstemmed | Management Forecast Quality and Capital Investment Decisions |
| title_short | Management Forecast Quality and Capital Investment Decisions |
| title_sort | management forecast quality and capital investment decisions |
| url | http://hdl.handle.net/1721.1/88127 https://orcid.org/0000-0002-3472-5443 |
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