Relationship between Accuracy of Managers’ Earnings Forecasts and Senior Managers’ Turning

Abstract

The predictions provided by the executives about company’s future profitability contain potentially valuable concepts that help investors to make optimal decisions. Like any other information, the value of this prediction depends on its accuracy and credibility in investors’ point of view. The main objective of this study was to investigate the relationship between the accuracy of managers’ earnings forecasts and senior managers’ turning. In theories, it is expected that shareholders support the managers that have more accurate and informative predictions. Having this objective, the data of 81 firms for a 5-year-period, were collected. A multivariate panel regression model is used to test the research hypotheses. The results showed that there exists a negative significant relationship between the accuracy of managers’ earnings forecasts and senior managers turning. In other words, in the Iranian companies, managers with more realistic and accurate predictions for future profit, were considered able managers and were accepted to hold their managing positions by investors. In the second hypothesis, the companies divided into two groups of firms with good performance and firms with poor performance. The findings from testing the hypothesis indicated that in the firms with poor performance, there was a positive and stronger relationship between the accuracy in prediction of absolute performance by the managers and changing director managers, compared with the firms with good performance. In other words, when companies’ performance is satisfactory, supporting the managers with less accurate earnings forecasts could be expected more.

Keywords

• earnings forecast accuracy
• profitability
• senior managers turning