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Managerial Ability and Forecast Accuracy



Author(s)

Panagiotis I. Chronopoulos, Georgia Siougle

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DOI:10.17265/1548-6583/2017.12.002

We examine the relation between managerial ability and management forecast accuracy. We base our analysis on S&P 500 Composite Index constituents for the period of 2006-2012. Data were collected from Thomson Reuteurs, Compustat and Demerjian, Lev, and McVay (2012). We find that forecast accuracy is positively associated with managerial ability in the case of sales forecasts. Specifically, more able managers are associated with lower magnitude’s forecast errors in the case of sales forecasts. Additional analysis finds that managerial ability is immaterial to EPS figures’ forecast accuracy, i.e., EPS forecasts appear not to be affected by manager’s superiority. Regarding sales forecasts, the results are consistent with the assertion that managers impact the quality of the delivered management forecasts. Regarding EPS forecasts, the results are in alignment with Demerjian, Lev, Lewis, and McVay (2013) who highlighted that managerial ability is an ability score related to the entire management team.

managerial ability, forecast accuracy, forecast error