Management Earnings Forecasts and the Information Asymmetry Evidences from Tehran Stock Exchange (TSE)

2014 ◽  
Vol 1 (3) ◽  
pp. 53
Author(s):  
Javad Moradi ◽  
Motahare Iranmanesh
Keyword(s):  
Information Asymmetry ◽  
Stock Exchange ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts

Is cost stickiness associated with management earnings forecasts?

2019 ◽  
Vol 28 (2) ◽  
pp. 173-211 ◽  
Author(s):  
Shipeng Han ◽  
Zabihollah Rezaee ◽  
Ling Tuo
Keyword(s):  
Information System ◽  
Information Asymmetry ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Firm Level ◽  
Content Type ◽  
Cost Behavior ◽  
Asymmetric Cost ◽  
Cost Stickiness ◽  
Asymmetric Cost Behavior

Purpose The literature suggests that management discretion to adjust resources in response to changes in sales can create asymmetric cost behavior and management incentives to move stock prices can influence its decision to release management earnings forecasts (MEF). The purpose of this paper is to investigate the association between a firm’s degree of cost stickiness and its propensity to release MEF. The authors propose that both MEF and cost stickiness are influenced by management strategic choices and provide two possible explanations along with supportive evidence. First, when management is optimistic about future performance, it tends to increase both cost stickiness and is willing to disclose the optimistic expectations through MEF. Second, cost stickiness increases information asymmetry between management and investors, thus management tends to issue earnings forecast to mitigate the perceived information asymmetry. Design/methodology/approach The authors collect firm-level fundamental data from the COMPUSTAT database, and market data from the CRSP database during 2005 and 2016. The data used to measure variables related to institutional ownership and financial analysts are, respectively, obtained from the Thomson Reuters and the I/B/E/S databases. The quarterly MEF data are from two databases. The authors obtain the data before 2012 the from Thomson First Call’s Company Issued Guidance database and manually collect the data between 2012 and 2016 from the Bloomberg database for the largest 3,000 publicly traded US companies. The measurement of cost stickiness is based on the industry-level measurement developed by Anderson et al. (2003) and the firm-level measurements developed by Weiss (2010). The authors construct two measurements, management’s propensity to issue MEF and the frequency of MEF, to capture management’s voluntary disclosure strategy. Findings The analyses of a sample between year 2005 and 2016, indicate that the firm-level cost stickiness is positively associated with the firm’s propensity to issue MEF and the frequency of MEF. Moreover, the authors find that the level of cost stickiness is associated with more favorable earnings news forecasted by management. Additional tests suggest that both information asymmetry and managerial optimism may explain the relationship between cost stickiness and MEF. Finally, the authors find that the association between cost stickiness and MEF behaviors is more pronounced when the resource adjustment cost is high and when the firm efficiency is high. The results are robust after using alternative measurements of cost stickiness and MEF. Originality/value First, this paper attempts to build a bridge between managerial accounting and financial accounting by providing evidence of managerial incentives and discretions that affect both cost structure and earnings. The authors contribute to, and complement, prior studies that primarily disentangle the complicated accounting information system by focusing on either the internal information system or the external information system. Second, the paper complements prior studies that examine cost stickiness and its determinants of asymmetric cost behavior by providing additional evidence for the value-relevance of cost stickiness strategy and its link to MEF releases in mitigating information asymmetry. Third, the findings are also relevant to current debates among policymakers, academia and practitioners regarding modernization of mandatory and voluntary disclosures through discussing the managerial incentive behind the managerial disclosure strategies as reflected in MEF releases (SEC, 2013). Fourth, the authors provide evidence regarding management’s role in influencing cost asymmetry and MEF releases, which support the theoretical argument that management discretions affect the firms’ cost structure and MEF disclosures.

Management Earnings Forecasts and Accounting Conservatism

2019 ◽  
pp. 0148558X1986543
Author(s):  
Bikki Jaggi ◽  
Hua Christine Xin ◽  
Joshua Ronen
Keyword(s):  
Information Asymmetry ◽  
Cost Of Capital ◽  
Earnings Forecasts ◽  
Legal Liability ◽  
Accounting Conservatism ◽  
Management Earnings Forecasts

In a recent paper, Hui, Matsunaga, and Morse have argued that managers may prefer using accounting conservatism instead of issuing management earnings forecasts (MFs) that may reduce information asymmetry and may lower firms’ potential legal liability. We argue in this article that accounting conservatism serves as a substitute only for informative forecasts, which are classified as cost of capital (COC) MFs, and it does not serve as a substitute for opportunistic (OPP) MFs and disclose or abstain (DOA) MFs that are required under 1933 Securities Exchange Act because both these types of MFs are used to achieve different objectives. Our findings confirm our claim that conservatism serves as a substitute for informative MFs only.

Management earnings forecasts, insider trading, and information asymmetry

2014 ◽  
Vol 26 ◽  
pp. 96-123 ◽  
Author(s):  
Anastasia Kraft ◽  
Bong Soo Lee ◽  
Kerstin Lopatta
Keyword(s):  
Information Asymmetry ◽  
Insider Trading ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts
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