CEO Extraversion and Management Earnings Forecasts
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This study investigates the effects of CEO extraversion, the single most salient personality trait (Cain 2012), on management earnings forecasts. An extraverted individual is characterized as being energetic, talkative, assertive, decisive and sociable (Wilt and Revelle 2009). I examine whether and how CEO extraversion influences the likelihood of issuing management earnings forecasts and the bias of issued forecasts. I also explore how CEO extraversion interacts with two industry-level determinants of voluntary disclosure in management earnings forecasting decisions. I find that extraverted CEOs are more likely to issue earnings forecasts. In addition, extraverted CEOs issue less upward biased forecasts and are less likely to miss their own forecasts. Furthermore, I document that the impact of CEO extraversion on the issuance and bias of management earnings forecasts is attenuated when a firm faces high proprietary cost or high litigation risk of voluntary disclosure. My results are robust to the control for potential endogeneity issues. Analyzing the stock market reaction to management forecasts, I also show that increases in CEO extraversion are associated with stronger stock market reaction to news conveyed in management forecasts. My study adds to the management forecast literature by providing direct evidence on the strong effects of CEO extraversion on management earnings forecasts. My study also extends the Upper Echelons Theory (Hambrick and Mason 1984; Hambrick 2007) by showing that management forecasting, a complex and important corporate decision, reflects the personalities of top managers.