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| The Rounding Behavior in Management Earnings Forecast |
| YU Jianqiao, LUO Ting
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| School of Economics and Management, Tsinghua University |
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Abstract This paper investigates the rounding behavior in management earnings forecast. We find that public firms tend to round their management forecasts. On the contrary, the rounding is rare for actual earnings. Furthermore, we find management forecasts are more likely to be rounded based on larger divisor when the information uncertainty or industry competition is high. We also find that the magnitude of the rounding base is closely related with forecast quality: when larger divisor is used, the rounded forecasts are significantly more inaccurate and more optimistic. Besides, when larger divisor is used in the forecasts, the market reaction is weaker, and investors are more likely to have negative returns. The results of this paper provide important implications for the investors on understandingmanagement forecasts and making investment decisions.
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Received: 30 March 2015
Published: 01 January 1900
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