Why Do Managers Voluntarily Release Earnings Forecasts?

Managers often release earnings forecasts in advance of actual earnings announcements. It would appear that managers should at best be indifferent to such release given that the actual earnings will be disclosed at a future date. However, if the manager’s objective is to maximize his firm’s market value and he has control of production decisions, he may be motivated to release an earnings forecast. The reason is that the forecast release gives investors a more favorable assessment of the manager’s ability to anticipate economic environment changes and to adjust production plans accordingly. Forecast release can thereby translate into a higher firm market value.