A Preliminary Investigation of Management Forecasts by the Reasonable Basis Criterion

• Main Authors: Huang, Chin-Jen, 黃金仁
• Other Authors: David M. Chen
• Format: Others
• Language: zh-TW
• Published: 1995
• Online Access: http://ndltd.ncl.edu.tw/handle/36499668850329297613

碩士 === 輔仁大學 === 金融研究所 === 83 === This Thesis attempts to qualify the reasonable basis criterion imposed on management forecasts. First nineteen lead indicators of corporate future earnings are derived from historical financial statements and macroeconomic forecasts. These earnings lead indicators (ELIs) consist of three grops: operating and financial strength, industrial competitive strength, and macroeconomic outlook. Next, multiple regression, step-wise regression, and factor analysis are utilized to explain both management forecasts (MFs) and forecast errors (MFEs). Based on the explanatory power of ELIs on both MFEs, managemrnt forecasts can be classified into four categories: full utilization, sub-utilization, nil-utilization, and no explanatory content of the ELIs. Since for the entire sample, ELIs can explain MFs more than MFEs, we conclude that management forecasts as a whole do have reasonable basis. However, certain degree of improvement can be made by paying more attention to the adequacy of bad-debt allowance when generating earnings forecasts. In addition, the results are affected by the year of forecasts and the industry classification of the firms. The group of ELIs representing industrial competitive strength is measured by the relative operating and financial strength of a firm within an industry. This group of ELIs is highly correlated with the group of ELIs denoteing the absolute operating and financial strength of the firm, hence, does not add much explanatory power to the model. Future research may consider other measures of industrial competitive strength as well as incorporate other industrial forecasts and macroeconomic forecasts into the ELIs.