CEO career concerns and the precision of management earnings forecasts

We extend the research on how CEOs address career concerns during their early tenure in firms and we argue that CEOs use a forecast precision strategy to highlight or obfuscate information in a way that may help them convey favorable signals on their abilities. Our findings show that new CEOs are more likely to increase forecast precision when the underlying forecast news is better to highlight positive signals and they will obfuscate more negative news by lowering forecast precision to moderate investors’ negative reaction. Additionally, our results show that CEOs especially use this approach when firms are headquartered in the states that have stricter enforceability of non-compete clauses. We also find that the association between forecast precision and forecast news is stronger when institutional monitoring is weak, CEOs are young, and/or hired from outside the firm. Our main findings remain unchanged when only quarterly forecasts are used in the analyses and are robust to different early tenure cutoffs.