Working Paper | HBS Working Paper Series | 2008

CEO and CFO Career Penalties to Missing Quarterly Analysts Forecasts

by Rick Mergenthaler, Shiva Rajgopal and Suraj Srinivasan


We find that missing the quarterly analyst consensus earnings forecast is associated with career penalties in the form of a reduced bonus, smaller equity grants, and a greater chance of forced dismissal for both CEOs and CFOs during the period 1993-2004. These results are obtained after controlling for several proxies for earnings and stock return performance suggesting that boards appear to penalize managers for failing to meet analysts' quarterly earnings forecasts per se. Career penalties for failing to meet the analyst consensus estimate are no different for firms where forecasting earnings is harder. Moreover, such penalties have increased in the post-SOX period. Our evidence suggests that incentives of the CEO and CFO to meeting analysts' consensus forecast might be driven at least partly by career concerns.

Keywords: Earnings Management; Governing and Advisory Boards; Compensation and Benefits; Managerial Roles; Personal Development and Career;


Mergenthaler, Rick, Shiva Rajgopal, and Suraj Srinivasan. "CEO and CFO Career Penalties to Missing Quarterly Analysts Forecasts." Harvard Business School Working Paper, No. 09-014, August 2008. (Revised June 2009.)