The Relationship Between Earnings Management and Model-Based Earnings Forecast Accuracy

The aim of this study is to analyze the relationship between earnings management and model-based earnings forecast accuracy. We provide evidence that firms with higher level of earnings management tend to exhibit larger forecast errors, i.e., earnings forecast accuracy for these firms is lower. Further, we show that accounting for the level of earnings management in earnings forecast models increases forecast accuracy, which then translates to more reliable ICC estimates