Differences in U.S. Versus European Voluntary Earnings Forecasts

Abstract

This study provides empirical evidence regarding the credibility of management forecasts of earnings for both U.S. firms and a sample of firms from nine European countries. This study draws a distinction between U.S. firm forecasts and European firm forecasts. Earnings forecasts for U.S. and European firms were evaluated for the years 2000-2018. The evaluation consisted of conducting a study of bias and information content of the earnings forecasts for both firm groups. Bias results indicate that U.S. managers exert greater downwards earnings management on the forecast (relative to actual earnings), while the European managers exert greater upwards earnings management on the forecast (relative to actual earnings). Information content results indicate that for U.S. firms forecasts tend to exhibit a positive information-enhancing signal to users. For European firms, users interpret the forecast as being more noisy and potentially less informative.