The effect of CEO adverse professional experience on management forecast pessimism

Eunice S. Khoo; Louise Y. Lu; Zihang Peng

doi:10.1111/acfi.13324

The effect of CEO adverse professional experience on management forecast pessimism

Eunice S. Khoo^*, Louise Y. Lu, Zihang Peng

^*Corresponding author for this work

Research School of Accounting

Research output: Contribution to journal › Article › peer-review

Abstract

We examine how CEOs' past experiences of corporate distress affect their subsequent forecast behaviour. We find that CEOs who experienced distress in a non-CEO position at another firm issue more pessimistic management earnings forecasts after becoming CEO at their current firm. The effect of such experiences on CEOs' forecasting behaviour is more pronounced when these have occurred more frequently or recently. The effect of distress experiences is mitigated for overconfident and experienced CEOs, but amplified in firms with poor performance and high uncertainty. Our findings suggest that CEOs who experienced corporate distress could be overly cautious when forecasting future earnings.

Original language	English
Journal	Accounting and Finance
DOIs	https://doi.org/10.1111/acfi.13324
Publication status	Accepted/In press - 2024

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10.1111/acfi.13324

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title = "The effect of CEO adverse professional experience on management forecast pessimism",

abstract = "We examine how CEOs' past experiences of corporate distress affect their subsequent forecast behaviour. We find that CEOs who experienced distress in a non-CEO position at another firm issue more pessimistic management earnings forecasts after becoming CEO at their current firm. The effect of such experiences on CEOs' forecasting behaviour is more pronounced when these have occurred more frequently or recently. The effect of distress experiences is mitigated for overconfident and experienced CEOs, but amplified in firms with poor performance and high uncertainty. Our findings suggest that CEOs who experienced corporate distress could be overly cautious when forecasting future earnings.",

keywords = "adverse professional experience, CEO experience, disclosure, management forecast, pessimism",

author = "Khoo, {Eunice S.} and Lu, {Louise Y.} and Zihang Peng",

note = "Publisher Copyright: {\textcopyright} 2024 The Author(s). Accounting & Finance published by John Wiley & Sons Australia, Ltd on behalf of Accounting and Finance Association of Australia and New Zealand.",

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N2 - We examine how CEOs' past experiences of corporate distress affect their subsequent forecast behaviour. We find that CEOs who experienced distress in a non-CEO position at another firm issue more pessimistic management earnings forecasts after becoming CEO at their current firm. The effect of such experiences on CEOs' forecasting behaviour is more pronounced when these have occurred more frequently or recently. The effect of distress experiences is mitigated for overconfident and experienced CEOs, but amplified in firms with poor performance and high uncertainty. Our findings suggest that CEOs who experienced corporate distress could be overly cautious when forecasting future earnings.

AB - We examine how CEOs' past experiences of corporate distress affect their subsequent forecast behaviour. We find that CEOs who experienced distress in a non-CEO position at another firm issue more pessimistic management earnings forecasts after becoming CEO at their current firm. The effect of such experiences on CEOs' forecasting behaviour is more pronounced when these have occurred more frequently or recently. The effect of distress experiences is mitigated for overconfident and experienced CEOs, but amplified in firms with poor performance and high uncertainty. Our findings suggest that CEOs who experienced corporate distress could be overly cautious when forecasting future earnings.

KW - adverse professional experience

KW - CEO experience

KW - disclosure

KW - management forecast

KW - pessimism

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JO - Accounting and Finance

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The effect of CEO adverse professional experience on management forecast pessimism

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