The Association between Management Earnings Forecast Deviation, Earnings Management, and the Stock Prices: Evidence from the Emerging Markets

This study empirically investigates the association between management earnings forecasts Deviations (MEFDs) and both earnings management (DACC or EM) and the stock prices (SP/SPC) of listed companies on the Egyptian Exchange (EGX 100) as one of the emerging markets. To achieve the study’s objectives, 351 firm-year observations were used during the period from 2016-2019. Four hypotheses were tested, and two models were employed for hypotheses testing. In the first model, EM was regressed with three independent variables named issue management earnings forecasts (ISUFOR), audit management earnings forecasts (AUDFOR), and MEFDs. In the second model stock price was regressed with MEFDs. Some appropriate control variables were added to both models. The findings of this research showed that about 49% of listed companies on the Egyptian stock market issue MEFs, while only about 29% of them audit such forecasts. Egyptian listed companies are still involving in EM practice at average of 12% of earnings upward and minimum of -36% (downward) and maximum of 79% (upward). The findings support all hypotheses, as both models are significant. EM is positively and significantly associated with ISUFOR and MEFDs, while it is negatively and significantly associated with AUDFOR. SP (SPC) is negatively and significantly associated with MEFDs. The findings of this study have wide implications for future research on the usefulness of forecasted accounting information in manipulating earnings and stocks valuation. This study reveals that accounting information may also be useful for stock market regulators and investors.