Is Corporate Governance Related to the Conservatism in Management Earnings Forecasts?

Managers are more likely to overestimate earnings if they are less likely to be penalized when their forecasted earnings cannot be achieved. Since corporate governance is expected to influence a firm's monitoring mechanism, the authors argue that the corporate governance mechanism will also affect the conservatism in management earnings forecasts. This study's results indicate that earnings forecasts tend to be more conservative for those firms with larger insider shareholdings, higher institutional shareholdings, or that have a CEO serving as the board chairman. They tend to be less conservative for the firms that are controlled by a family or are characterized by a pyramidal ownership structure.