Performance target setting for organizational impression management: overestimated earnings targets after previous target misses

초록

In capital markets, stakeholders are attentive to firm performance targets with the expectation that firms will announce feasible performance targets for rational firm evaluation. Failure to meet self-set targets often results in significant stock price reductions. Thus, setting overestimated performance targets should be avoided. Based on the organizational impression management perspective, this study examines what compels firms to set overestimated performance targets. Using the management forecasts (earnings target announcements) of 3273 Japanese firms from 2003 to 2015, we demonstrate that firms tend to set overestimated earnings targets after missing previous targets to offset the negative consequences of missed targets. We also find that institutional investors and financial analysts moderate firms' tendencies to overestimate earnings targets following earnings target misses. Additional analysis shows that setting overestimated earnings targets mitigates investors' negative reactions to missed targets, confirming that overestimated forecasts influence investors' impressions. This study extends the literature on corporate performance targets by suggesting strategic organizational impression management as a key mechanism for performance target setting. We anticipate that it will inspire future research into the development of theories surrounding firms' strategic actions concerning performance target setting and impression management, particularly in scenarios where targets are not met.

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