Accounting Papers

Document Type

Journal Article

Date of this Version

9-2007

Publication Source

Review of Accounting Studies

Volume

12

Issue

2

Start Page

183

Last Page

215

DOI

10.1007/s11142-007-9033-4

Abstract

This paper studies the properties and determinants of managers’ multi-year financial forecasts. Using one- to five-year-ahead forecasts reported by private venture-backed firms, we ask whether, by how much, and why biases in managers’ forecasts of revenues, expenses and profits depend on the forecasting horizon and the verifiability of assets. We find that profitability forecasts contain a strategic component, in that [1] one-year-ahead revenue (expense) forecasts are slightly and asymmetrically pessimistic (optimistic), while five-year-ahead forecasts are hugely and asymmetrically optimistic (pessimistic); and [2] biases in revenue and expense forecasts are larger, the harder to verify or more intangible-intensive are firms’ assets.

Keywords

management forecasts, optimism, strategic biases, venture capital

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Date Posted: 27 November 2017

This document has been peer reviewed.