Events

Dr. Lian Fen Lee
Associate Professor in Accounting
Carroll School of Management
Boston College

This study examines the predictive benefits of night lights satellite images as an internal forecasting tool for firms with international operations. We hypothesize that night lights intensity, which is a proxy for economic activity, in foreign countries is associated with management forecast errors if firms misjudge foreign countries’ macroeconomic conditions in the forecasting process. Results indicate that change in night lights is positively associated with forecast errors related to international operations. The positive association is more pronounced when firms face greater forecasting challenges, such as operating in countries with low-quality national accounts data and high GDP volatility, having limited experience in the countries, and showing a history of significant forecast errors in international operations. The positive association is less pronounced for non-cyclical firms whose performance in foreign countries does not vary much with the local macroeconomic conditions. We further show that night lights data can mitigate costly forecast errors through appropriate downward (upward) adjustment of optimistic (pessimistic) forecasts.