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Doctor of Philosophy (PhD)
Year Degree Awarded
Month Degree Awarded
M. David Piercey
Management forecasts can have varying degrees of roundness, including sharp (e.g., a sales growth forecast of 9.73% or 10.27%), explicitly round (e.g., 10.00%), and rounded (e.g., 10%). Prior archival research indicates investors rely less upon round than sharp forecasts (Bamber, Hui, and Yeung 2010), yet it is unclear why this occurs or how contextual features of earnings forecasts moderate this effect. Moreover, this prior research has not distinguished between the effects of explicitly round versus rounded estimates. I provide evidence that the impact of forecast roundness on willingness to invest depends upon forecast uncertainty. That is, rounded sales forecasts enhance management credibility and make investors more willing to invest, but only when the level of forecast uncertainty is higher. Furthermore I find that investors react to explicitly round and rounded forecasts differently (i.e., 10.00% versus 10%), with explicitly round forecasts leading to higher willingness to invest when uncertainty is lower versus when uncertainty is higher similar to rounded forecasts. I also examine and find that managers can alter their language to repair credibility concerns resulting from a mismatch between forecast roundness and forecast uncertainty. Overall, my results show how a change as seemingly innocuous as rounding a sales forecast can alter investors’ perceptions of management credibility and their willingness to invest. For example, my findings suggest conditions in which companies using a sharp underlying sales forecast to meet an earnings target can improve investors’ perceptions by simply rounding the sales forecast disclosed while keeping the underlying number sharp. To the extent that investors react negatively to a mismatch between forecast roundness and forecast uncertainty, my results provide information to financial managers about how to carefully construct earnings forecasts to limit these negative reactions.
Osgood, Jessica, "THE IMPACT OF FORECAST ROUNDNESS, FORECAST UNCERTAINTY, AND MANAGERS’ LANGUAGE ON INVESTORS’ JUDGMENTS" (2017). Doctoral Dissertations. 943.