Managerial Conservatism and Forecasting Style – Evidence from German
|Type:||Articles in Refereed Journals (International)|
|Published by:||Journal of Business Economics, forthcoming|
We investigate whether conservatism as a personality trait, measured by managers’ signatures, influences managers’ forecasting style. Building on upper echelons theory and psychology literature, we predict that conservative personality traits such as the resistance to change and the ensuing cautiousness in updating beliefs influence managers’ forecasts. Our findings suggest that conservative CFOs more likely select earnings as compared to revenues as the main KPI of the forecast, keep the same KPI across years, and issue specific forecasts. Finally, we provide some evidence that conservative CFOs issue more accurate forecasts. Overall, our findings suggest that the CFO is primarily involved in planning and developing management forecasts.