On Predictability of Revisioning in Corporate Cash Flow Forecasting

Financial services within corporations usually are part of an information system on which many business functions depend. As of the importance of forecast quality for financial services, means of forecast accuracy improvement, such as data-driven statistical prediction techniques and/or forecast support systems, have been subject to IS research since decades. In this paper we consider means of forecast improvement due to regular patterns in forecast revisioning. We analyze how business forecasts are adjusted to exploit possible improvements for the accuracy of forecasts with lower lead time. The empirical part bases on an unique dataset of experts' cash flow forecasts and accountants' actuals realizations of companies in a global corporation. We find that direction and magnitude of the final revision in aggregated forecasts can be related to suggested targets in earnings management, providing the means of improving the accuracy of longer-term cash flow forecasts.

[1]  L. Naveen,et al.  Do Firms Manage Earnings to Meet Dividend Thresholds? , 2007 .

[2]  R. Zeckhauser,et al.  Earnings Management to Exceed Thresholds , 1999 .

[3]  Andrew J. Leone,et al.  Earnings-based bonus plans and earnings management by business-unit managers 1 We thank the Center f , 1999 .

[4]  Campbell R. Harvey,et al.  The Theory and Practice of Corporate Finance: Evidence from the Field , 1999 .

[5]  Bernard Marr,et al.  Key Performance Indicators: The 75 Measures Every Manager Needs to Know , 2012 .

[6]  John D. Martin,et al.  Financial Planning Where the Firm's Demand for Funds is Nonstationary and Stochastic , 1988 .

[7]  Mihir A. Desai,et al.  Earnings Manipulation, Pension Assumptions and Managerial Investment Decisions , 2005 .

[8]  William D. Nordhaus,et al.  Forecasting Efficiency: Concepts and Applications , 1987 .

[9]  Sugata Roychowdhury.  Earnings Management Through Real Activities Manipulation , 2006 .

[10]  P. Healy.  The effects of bonus schemes on accounting decisions , 2015 .

[11]  René M. Stulz,et al.  Managerial discretion and optimal financing policies , 1990 .

[12]  L. Effron,et al.  Earnings Management to Avoid Earnings Decreases and Losses , 1998 .

[13]  John Jacob,et al.  Earnings Management and Accounting Income Aggregation , 2005 .

[14]  Can rational stubbornness explain forecast biases , 2013 .

[15]  Marcus O'Connor,et al.  Sales forecasting updates: how good are they in practice? , 2000 .

[16]  Lawrence A. Gordon,et al.  A contingency framework for the design of accounting information systems , 1976 .

[17]  Robert Fildes,et al.  The design features of forecasting support systems and their effectiveness , 2006, Decis. Support Syst..

[18]  Richard G. Sloan,et al.  Annual bonus schemes and the manipulation of earnings , 1995 .

[19]  M. Weisbach,et al.  The Cash Flow Sensitivity of Cash , 2003 .

[20]  D. Burgstahler,et al.  Management of Earnings and Analysts' Forecasts to Achieve Zero and Small Positive Earnings Surprises , 2006 .

[21]  David C. Mauer,et al.  The Determinants of Corporate Liquidity: Theory and Evidence , 1998, Journal of Financial and Quantitative Analysis.

[22]  Jonas Dovern,et al.  Accuracy, Unbiasedness and Efficiency of Professional Macroeconomic Forecasts: An empirical Comparison for the G7 , 2011 .

[23]  Florian Knöll,et al.  Organizational Information improves Forecast Efficiency of Correction Techniques , 2017, ITAT.

[24]  Heli Wang,et al.  Effect of Finanacial Hedging on the Incentives for Corporate Diversification: The Role of Stakeholder Firm-Specific Investments , 2007 .

[25]  Masahiro Ashiya,et al.  Testing the rationality of Japanese GDP forecasts: the sign of forecast revision matters , 2003 .