An analysis of the impact of managers' risk aversion on their propensity to manage expectations.

Details

Supervisors

Thewissen, James

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion, à finalité spécialisée

Abstract

This paper investigates whether managers' risk aversion, proxied by political affiliation, influences their propensity to manage expectations. Expectations Management refers to the guidance of financial analysts' forecasts. The aim is to artificially increase the likelihood to meet expectations and benefit from a positive stock market reaction on and after the earnings announcement date. Based on a sample of 35.411 observations across 2.320 different firms, our findings reveal that companies led by Republican CEOs exhibit a higher propensity for guiding financial analysts' forecasts than those managed by Democrats. As Republicans are considered more conservative and risk-averse, a potential explanation could be the limited regulatory risk related to the expectations management practice. Our findings reinforce prior research highlighting differences in management styles and decision-making between Republican and Democratic CEOs.