Stickiness of Manager's Expectations and Profitability Anomalies

Managerial forecasts of future profits will help investors make optimal decisions. Like other information, the value of these forecasts depends on their accuracy. Revision of past forecasts leads to a forecast error. The revisions result from new information. On the other hand, some managers revise their forecasts slowly in response to new information. This research investigates the relation between the sustainability of profitability signals and stickiness of manager expectations. The sample consists of 178 firms for the period of 6 years from 2011 to 2016. This study analyzes data and tests the hypothesis using panel-data and multi-variate regression methods. Findings show a positive and significant relation of manager expectations stickiness to sustainability of return on equity, the sustainability of gross profitability and the sustainability of cash flows. Moreover, findings indicate a negative and significant relation between manager expectations stickiness and sustainability of return on assets. Therefore, we can say that the stickiness expectations of managers have effects on sustainability of profitable signals.