Managers’ Incorporation of Macroeconomic Information in their Forecasts and Firm Performance

This paper examines the association between managers’ incorporation of consumer sentiment news in their forecasts and firm performance. We find that firms with revenue forecasts that incorporate U.S. consumer sentiment news to a smaller extent perform worse subsequently. The association is concentrated among firms that generate a larger proportion of their revenues from the U.S., and firms in industries where the co-movements between the industry revenues and consumer sentiment are high. Because consumer sentiment news is public and impacts firms in the same industry similarly, competitors who are better at incorporating consumer sentiment can exploit potential underestimation of demand by firms deemed to be less able to incorporate consumer sentiment. As a result, these firms lose market share and perform worse subsequently. We find evidence consistent with this explanation. Overall, this paper considers the influence of strategic actions by competitors to provide insights on how failing to incorporate consumer sentiment can impact firm performance