How and why do managers use public forecasts to guide the market?

We compare public managerial forecasts with internal forecasts collected by a large-scale government survey. Although both forecasts are mandatory, predict corporate investment, and are overoptimistic on average relative to realizations, public forecasts tend to be pessimistic relative to internal forecasts. Managers under more shareholder pressure and with higher pay-performance sensitivity are more publicly pessimistic. The relative pessimism predicts higher stock returns, positive earnings surprises, and more executive compensation. However, managers decrease pessimism when issuing secondary equity offerings and become publicly optimistic when they are financially constrained, consistent with an inter-temporal trade-off between beating managerial targets versus maintaining financial flexibility.