Enterprise Risk Management and Management Earnings Forecasts

Enterprise risk management (ERM) is an institutional agenda emphasizing holistic risk oversight and strategic planning. This study examines whether and how the adoption of ERM affects management earnings forecasts. We first document that ERM adoption increases the likelihood and accuracy of management earnings forecasts. We then provide evidence that ERM adoption improves forecast quality by reducing the volatility of fundamentals and enhancing managers’ ability to assess both internal and external information. Finally, we find that the positive effect of ERM in improving forecast accuracy is more pronounced for long-horizon forecasts, consistent with ERM’s long-term strategic focus. Collectively, our results shed light on how ERM adoption improves the quality of a key voluntary disclosure—management forecasts. This paper was accepted by Ranjani Krishnan, accounting. Funding: C. Li thanks the C.A. Scupin professorship at the University of Kansas, L. Sun thanks the Barney A. Coda professorship at the University of North Texas, and J. Xu gratefully acknowledges the G. Brint Ryan College of Business Summer Research Grant at the University of North Texas. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.01120 .