Should Managers Provide Forecasts of Earnings ? 


OVERVIEW The issue of whether managers should provide forecasts of earnings has received a large amount of attention in the last few years. While the debate has had input from a variety of sources, the discussion has not drawn on the large amount of empirical research examining management forecasts of earnings. This paper provides a review of that literature, first discussing the benefits of forecasting including a more informed capital market, current returns that are more reflective of future performance and reduced information asymmetry. However, the paper also points out some potential costs such as managerial opportunism. On balance, the review concludes forecasting creates a net benefit. I then review the literature regarding effectiveness of forecasting. That literature indicates that variance in forecasting practices can have a strong influence on whether firms achieve the benefits of forecasting. I conclude with a normative discussion of some suggested practices.