Comparative evaluation of market based and accounting based models in determination of forecasts management

DOI: 10.5176/2251-1997_AF16.52

Authors: Vahid Biglari and Frankie Goh Song Peng

Abstract:

This study compares the preciseness of approaches for determining the forecasts management activities done by the companies listed in the New York Stock Exchange (NYSE). Similar studies are limited. Two markets based and two accounting based models of forecasts management are tested in their capabilities to capture income decreasing forecasts managements that are used to produce small positive earnings surprises. The accuracy of the models have not been tested in the literature. This has led to confusion to select an accurate model for measuring forecast management in the literature. Comparative supremacies of these methods have been evaluated using data from 2549 firm years through 2013-14. The findings indicate that the market based measures have higher capability of determining forecasts management.

Keywords: forecasts management forecasts revision market based model accounting based model