TY - JOUR
T1 - Impact of Tournament Incentives on Management Earnings Forecasts
AU - Cheng, Xin
AU - Palmon, Dan
AU - Yang, Yinan
AU - Yin, Cheng
N1 - Publisher Copyright:
© ©The Author(s) 2021.
PY - 2021
Y1 - 2021
N2 - This paper examines how rank-order tournament incentives in the top management team (TMT) influence the quality of management earnings forecasts (MEFs). Instead of breeding feelings of inequality and fostering peer sabotage, the large pay gap between the CEO and subordinates may motivate top executives to issue more accurate and precise forecasts to win the prize of promotion. The positive tournament effect on the quality of MEFs is weakened (strengthened) when the perceived probability of promotion for candidates is low (high). We find that firms with higher tournament incentives are more likely to issue supplementary forecasts to increase the credibility of MEFs. By examining the tournament effect at each subordinate manager level, we find that CFOs are the driving force in controlling the frequency and quality of management forecasts and chief marketing officers (CMOs) may also contribute to the quality of management forecasts. The results are robust to multiple measures of tournament incentives and multiple research designs.
AB - This paper examines how rank-order tournament incentives in the top management team (TMT) influence the quality of management earnings forecasts (MEFs). Instead of breeding feelings of inequality and fostering peer sabotage, the large pay gap between the CEO and subordinates may motivate top executives to issue more accurate and precise forecasts to win the prize of promotion. The positive tournament effect on the quality of MEFs is weakened (strengthened) when the perceived probability of promotion for candidates is low (high). We find that firms with higher tournament incentives are more likely to issue supplementary forecasts to increase the credibility of MEFs. By examining the tournament effect at each subordinate manager level, we find that CFOs are the driving force in controlling the frequency and quality of management forecasts and chief marketing officers (CMOs) may also contribute to the quality of management forecasts. The results are robust to multiple measures of tournament incentives and multiple research designs.
KW - management earnings forecasts
KW - supplementary forecasts
KW - tournament incentives
UR - http://www.scopus.com/inward/record.url?scp=85118882099&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85118882099&partnerID=8YFLogxK
U2 - 10.1177/0148558X211055883
DO - 10.1177/0148558X211055883
M3 - Article
AN - SCOPUS:85118882099
JO - Journal of Accounting, Auditing and Finance
JF - Journal of Accounting, Auditing and Finance
SN - 0148-558X
ER -