Download or read book Ex Post Bias in Management Earnings Forecasts written by Afshad J. Irani and published by . This book was released on 1999 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the effect of proprietary information, disclosure-related legal liability, earnings variability, financial distress, and external financing on bias in management earnings forecasts. Bias, specifically ex post bias (as is referred to in the management forecast literature), exists if the expected value of the observed management earnings forecasts differs from actual earnings. The effect of the test variables on ex post bias is investigated by examining whether a firm's forecast error (measure of ex post bias and defined as actual earnings minus management earnings forecast) is a function of the aforementioned variables. Proprietary information, disclosure-related legal liability, and earnings variability are hypothesized to be positively associated with ex post bias, while external financing and financial distress are expected to be negatively correlated. All the independent variables are measured using public information available at the time that the financial statements are released.Using a sample of 267 management earnings forecasts released during the period 1990-95 in the first three quarters of the fiscal year, I find that these forecasts are on average optimistic. Results from the multivariate regression analysis find that three of the five factors, proprietary information, financial distress and earnings variability, are significant in explaining ex post bias. For the most part, these findings are robust across various sub-samples.