We investigate how subordinates' strategic incentives to bias budgets are associated with senior managers’ profit expectations. Using proprietary panel data of internal profit forecasts from 2013–2019, we find that a one-standard-deviation increase in the importance of budget-based performance evaluation is associated with a 14–27% downward bias in profit forecasts. In contrast, the importance of budgets for resource allocation is partly associated with an upward bias. Cross-sectional tests reveal that the downward bias is stronger when budgets contain a higher proportion of newly planned information, are more highly aggregated, and when firms rely more strongly on bottom-up information flows. Field interviews with CFOs suggest that these biases persist because senior managers partially tolerate forecast inaccuracies in light of information asymmetries, learning frictions, and relationship maintenance costs. Together, our findings bridge research in accounting and economics by providing novel evidence on the connection between organizational design and forecast accuracy.