The Effect of Multi-Nationality on the Precision of Management Earnings Forecasts

Abstract

This study examines the relationship between a firm's degree of multi-nationality and its managers' earnings forecasts. Firms with a high degree of multi nationality are subject to greater uncertainty regarding earnings forecasts due to the additional risk resulting from the morecomplex multi-national environment. Prior research demonstrates that firms that fail to meet or beat market expectations experience disproportionate market losses at earnings announcement dates. The complexities and greater uncertainty resulting from higher levels of multi nationality are expected to be negatively associated with management earnings forecast precision. Results indicate that precision of management earnings forecasts is significantly negatively related to multi nationality (foreign sales/total sales and the number of geographic segments). These findings should be of interest to investors, analysts and other stakeholders who make decisions based on management earnings forecasts and to those interested in how multi-nationality affects business in general.