This thesis consists of two studies exploring the issues relating to financial forecasts made within an organization.
The first study investigates the effects of the adoption of rolling forecasts on the quality of product line forecasts of sales and contribution margins. Using quarterly regional data from several product lines of a multinational biotechnology supplier, I find evidence of improved forecast accuracy and reduced budgetary slack after the adoption of rolling forecasts. However, no improvement in forecast accuracy is documented for product lines that operated in environments exhibiting higher demand uncertainty. Furthermore, the reduction in slack is evident even for projections that are tied explicitly to compensation, suggesting that the rolling forecast process in itself can deter manipulation of forecasts. However, forecasts made for quarters that are further out (1) tend to have as much slack as projections made prior to the adoption of rolling forecasts, and (2) appear to be gradually adjusted upward over time. Finally, results show that forecast revisions tend to be overly optimistic, reflecting a systematic overreaction to good news and underreaction to bad news.
The second study, co-authored with Robert Stoumbos, investigates how internal organizational factors affect earnings forecast revision behavior and outcomes. An implicit assumption in the extant research on earnings guidance is that managers can easily obtain and incorporate news into their forecasts; managers can then decide, depending on their incentives, whether or not to disclose this information to the market and revise their forecasts. The results of this study suggest that geographical complexity and cost structure, which are organizational factors that may diminish a managers' ability to gather and process information to revise forecasts, affect the propensity of managers to revise earnings forecasts, even in the presence of incentives that would motivate increased discretionary disclosure. Furthermore, the magnitude of forecast errors that result after actual earnings are realized and reported is negatively associated with firm complexity. This study addresses the call for integration between financial and managerial accounting research by documenting the link between internal firm characteristics, particularly organizational complexity and cost structure, and managerial disclosure choices.
|Advisor:||Kaplan, Robert S.|
|School Location:||United States -- Massachusetts|
|Source:||DAI-A 71/02, Dissertation Abstracts International|
|Keywords:||Budgeting, Earnings guidance, Forecasting, Management accounting, Rolling forecasts|
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