As part of the CBP seminar series, Dr Wanyu Chung (University of Birmingham) will provide a presentation on ‘How Firm Forecast Errors Relate to Managerial Decision’.

Abstract

This paper examines firm-specific forecast errors on sales growth uniquely derived from both survey and balance sheet data of Greek manufacturing firms over 2000-2015 and relates forecast errors to firms’ managerial and operational decisions. We first document the following stylized facts about the shock features of forecast errors: (i) the distribution of forecast errors does not depend on aggregate business conditions, (ii) the shares of firms making large forecast errors are stable over time, irrespective of firm characteristics such as size and age; (iii) the shock component in forecast errors significantly dominates the ex-ante component of firm heterogeneity. We also find that the magnitudes of forecast errors matter: higher forecast errors (i.e., better news for firms) are associated with higher short-term debt, working capital, cash holding, input inventories and investment. Better news also have lagged effects on reducing total debt (through long-term debt) and all types of inventories.

 

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