Firms’ Forecast Errors Regarding Their Own Future Key Figures: The Disappearance of the Overoptimism Bias

I analyze the accuracy of firms’ forecasts of their own future sales (and workforce numbers), which German companies provided secretly to the IAB Establishment Panel. Previous empirical evidence, using forecasts from public disclosures, revealed that managers’ earnings or sales forecasts on average show a bias towards overoptimism. However, in the present study the average firm is found to be very well able to correctly forecast its own future key figures. I suggest that public disclosed forecasts are on average overoptimistic because they serve as a signal to investors, while the ones in this dataset do not. Although I also find a large fraction of firms to be persistently overoptimistic over time, the share of steadily overpessimistic firms is even slightly larger.