Market Incentive’s ability to Predict Forecasts Management

The results of previous studies about forecasts management are mixed.Some studies find that forecasts are informative and therefore forecastsrestrict future earnings management. Other studies claim that forecasts aredelusive and therefore lead to higher income increasing earnings management. To contribute in explaining the mixed results in the literature, this study examines the effect of stock transaction status on forecasts management. To do the experiment, out of 850 companies in NYSE, the researchers selected 311 based on availability of their forecasts information. The selected companies were divided into three groups of Buy, Hold and Sell. To do the experiment, Management Forecast Errorand Forecasts Management of the abovementioned three groups werecompared. The results indicated that in order to avoid negative earnings surprises, Sell side companies should engage more in downward Forecast Management. However, the result did not show any congruence with Byeand Hold companies. The findings also depicted that stock market incentives influence management voluntary disclosure. Moreover, thepractical implications of this study can guide regulators to the necessity of considering market incentives and highlight the importance of voluntarydisclosure