The Determinants of Forecast Error Made by CEOs: SBF 120 Evidence

What is the link between governance and firm’ characteristics in forecast error? More specifically, how can female affect analyst forecast? This study sheds light on these questions while taking into account the endogeneity and granger causality test of the relationships among corporate governance and forecast error made by leaders. The authors make more additional contributions about female participation and forecast error to the literature. With a selective selection of the sample by eliminating firms that does not contain a woman in such a leading position, our sample is made up of 83 companies belonging to the SBF 120 index during the period 2010-2014. Our methodology is to estimate the linear regression, which connects the forecast’ error to the explanatory variables. The originality of this study focuses on the examination of the women’s participation in the explanation of the forecast error committed by the leader in the French context. Our results show that the diversity in the board improves significantly the reliability of the forecasts. Contrary to our hypothesis, the authors found a positive and significant relationship between the female leader and the forecast error. Added to that, the size, age and audit quality are as well are different compared to our assumptions but this is not the case for external directors. Concerning the structure of the undertaking, the results of the three models show a significant and positive impact on the size of the Directors’ board and the duality on the forecast error. In this study, the authors proved that the firms belonging to the service sector suffer from a forecast error that is considered very high.

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