Managerial Macro-cognition and Management Forecast:Evidence from MD&A Textual Information
With the accelerating evolution of the global economy and political landscape,both the international arena and domestic economic conditions are undergoing profound and intricate transformations,rendering the external macro-environment within which enterprises operate exceedingly complex.Nonetheless,within this macro-environment,there exist cognitive variances in manag-ers'comprehension and assessment of the macro-environment,engendering disparities in managerial decisions and actions,and consequently leading to divergent decision-making behaviors among enterprises.Management forecasts represent forward-looking prognostications of corporate surplus formulated by executives based on macroeconomic shifts and fundamental data,inherently susceptible to substantial influence from the macroeconomy,thereby shaping corporate decision-making processes.Hence,delving into the impact of managerial heterogeneity in macro-environmental cognition on corporate disclosures from the vantage point of management forecasting holds paramount significance in augmenting corporate awareness of macroeconomic risks and enhancing the capacity of both corporations and investors to identify and mitigate risks.Managerial macro-cognition pertains to the cognitive framework and processes through which management assimilates and evaluates information regarding the macro-economic landscape pertinent to the company,subsequently applying it to corporate decision-mak-ing.It delineates the macro information and its fluctuations that executives analyze and assess,leveraging their cognitive structures as the bedrock for decision-making.The greater the proficiency in managerial macro-cognition abilities,the more precise the analysis and judgment of the macro environment and its alterations,consequently bolstering the ability to accurately anticipate its ramifica-tions on the enterprise.In this study,we leverage natural language processing technology to extract macroeconomic-relevant descrip-tions from the textual content within the"Management Discussion and Analysis"(MD&A)section of annual reports,constructing an indicator of executive macro-cognition(MMC)to empirically evaluate its impact on the accuracy of management forecasts.Our findings indicate that MMC significantly increases the likelihood of issuing closed interval or point forecasts,reduces manage-ment forecast errors,and thereby enhances the precision of management forecasts.Cross-sectional analysis reveals that the influence of executive macro-perceptions on management forecasts is more pronounced in the outlook section compared to the retrospective section in MD&A.Moreover,this effect is accentuated for firms more susceptible to macroeconomic fluctuations,such as those operating in cyclical industries or with a lower competitive position in the market.Additionally,management forecasts of voluntary disclosures exhibit a more pronounced susceptibility to managerial macro-cognition compared to mandatory disclosures.Further re-search reveals that surrounding the surplus forecast announcement date,investors exhibit a heightened market reaction to firms with elevated managerial macro-cognition,thereby contributing to improved firm performance and reduced performance volatility.Fur-thermore,management performance forecasts contain significant macro information content,underscoring management's thorough consideration of macroeconomic impacts when formulating performance forecasts.This study contributes to the literature in several ways:firstly,by internalizing macroeconomic variables at the firm level,executive macro cognition encapsulates the heterogeneity in managerial aptitude to analyze and assess the macroeconomic landscape across firms,thereby integrating macroeconomic insights into the analytical framework of management forecasting impact.Secondly,it elu-cidates why,despite firm fundamentals and macroeconomic conditions,significant disparities in management forecasting accuracy persist among firms,thereby furnishing empirical support for Trueman's(1986)theory.Lastly,by examining managerial capabilities and their influence on management forecasts from the lens of firms'perceptions of the macro-environment,this study not only sup-plements extant literature on managerial capabilities but also enriches research on the interplay between macroeconomic policies and micro-firm behaviors.
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