How and Why Do Managers Use Public Forecasts to Guide the Market

We compare publicly disclosed forecasts and internal forecasts collected by confidential government surveys using a sample of publicly-listed Japanese firms. Both forecasts are mandatory and meaningfully predict corporate policy but on average public forecasts are pessimistic relative to internal forecasts. Firms with greater shareholder pressure and bonus-related compensation are more pessimistic. Public pessimism likely guides market beliefs down, predicting higher future stock returns, earnings surprises, and executive, but not rank-and-file, compensation. However, it flips to optimism when firms are financially constrained, consistent with an inter-temporal trade-off between benefits from meeting managerial goalposts versus maintaining financial flexibility.