[Accounting] Suil Pae - Career Concerns, Investment, and Management Forecasts
- SKKGSB
- Hit1686
- 2022-05-23
Area | Accounting | |
---|---|---|
Faculty | PAE, Suil | |
Journal | The Accounting Review | |
Title | Career Concerns, Investment, and Management Forecasts |
Professor Suil Pae's paper, "Career Concerns, Investment, and Management Forecasts," has been accepted for publication in The Accounting Review, the premier journal for publishing articles reporting the results of accounting research and explaining and illustrating related research methodology.
Abstract
A firm manager is concerned about both the firm value and the market assessments of his abilities.
When investing in a project, he has private knowledge of his project-related ability that interacts with the project investment, and his general ability that produces a cash flow independent of the project cash flow.
The concerns about the general (project-related) ability assessment create a signaling incentive to decrease (increase) investment.
In the presence of underinvestment (overinvestment), higher-quality earnings information reduces (improves) equilibrium efficiency.
When the manager issues an earnings forecast as an additional signaling device, the forecast is upwardly biased, and the equilibrium investment is smaller than that without a forecast.
The latter is because the signaling incentive to decrease investment is strengthened.
When the manager’s concerns about the general ability assessment are relatively large, he is better off by committing to no forecast. Novel empirical predictions about investment and earnings forecast emerge.
Keywords
Career concerns, investment, earnings forecasts, Efficiency