Institutional Investors’ Political Leanings and Management Earnings Forecasts

Abstract This study investigates the impact of institutional investors’ political leanings on managers’ decisions to provide earnings forecasts. Using a large sample from 2000 to 2018, we find that firms with Republican-leaning institutional investors issue more management earnings forecasts. This association is more pronounced for firms with weaker CEO power and stronger investor influence. Our results are robust to tests addressing endogeneity concerns and alternative measures for institutional investors’ political leanings. Additional analyses show that managers in these firms also issue earnings forecasts of higher quality and longer horizons. Furthermore, we find that the positive effect of investors’ Republican leanings on the frequency of management earnings forecasts is only valid for quasi-indexers and transient institutional investors who rely more on public information. Overall, this paper sheds light on how institutional investors’ political preferences influence firms’ management earnings forecasts and provides a political view to understand managers’ disclosure decisions.