CEO regulatory focus and management earnings forecasts

Abstract

In this study we examine the association between CEO Regulatory focus (RF) and likelihood, frequency, and accuracy of management earnings forecasts (MEFs). RF theory suggests that an individual makes decisions and pursues goals through either a promotion focus or prevention focus. A promotion focus individual is regulated towards achievements, success, growth, and advancement while a prevention focus individual is regulated towards vigilance, fulfilling basic duties and avoiding the performance of additional tasks. For the period of 2000 to 2018, we find that a CEO promotion focus is associated with higher likelihood, frequency, and accuracy of MEFs. On the other hand, CEO prevention focus results in a lower likelihood and frequency of MEFs. Additionally, the relationship between CEO prevention focus and MEF likelihood and frequency is negatively moderated by higher-level litigation within certain industries. Furthermore, stock return volatility is found to as mediate the relationship between CEOs RF (promotion focus and prevention focus) and MEFs.