Restatement Disclosures and Management Earnings Forecasts

2013 ◽  
Vol 27 (2) ◽  
pp. 347-369 ◽  
Author(s):  
Michael Ettredge ◽  
Ying Huang ◽  
Weining Zhang
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Quarterly Earnings ◽  
Financial Restatements ◽  
The Impact ◽  
Information Providers

SYNOPSIS We examine the impact of financial restatements on managers' subsequent earnings forecasts. We argue that restatements create conflicting incentives. One incentive is to repair manager reputations as information providers by providing more and better guidance via earnings forecasts. The opposing incentive is to avoid risk by reducing the information in forecasts. We find that compared to control firms, restatement companies exhibit a decreased propensity to issue quarterly earnings forecasts following restatements. Those that do make forecasts issue fewer forecasts in post-restatement periods. We also find that post-restatement forecasts are less precise, and are less optimistically biased. Overall, our results suggest that, rather than increasing voluntary disclosure in the form of forecasts, managers of restatement companies exhibit risk-averting forecasting behavior following restatements.

scholarly journals The Impact Of Social Capital On The Propensity And Properties Of Management Earnings Forecasts

2014 ◽  
Vol 30 (6) ◽  
pp. 1803
Author(s):  
Xinyi Lu
Keyword(s):  
United States ◽  
Social Capital ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
The United States ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Financial Factor ◽  
The Impact ◽  
The Relationship

This paper examines the relationship between the regional variation in social capital in the United States and the propensity and properties of the management earnings forecasts. Social capital refers to connections among individualssocial networks and the norms of reciprocity and trustworthiness that arise from them (Putnam 2000). Using a comprehensive sample of companies in the United States, we find that firms located in region with higher social capital are more likely to issue a management earnings forecast and are inclined to forecast more frequently. In addition, earnings forecasts made by those firms tend to be more specific. Our findings suggest that mangers of firms in the high social capital regions are more likely to be concerned about their reputation of providing transparent information regarding their businesses because of the close connections among individuals and the greater propensities to honor obligations. This study contributes to the accounting literature by identifying a non-financial factor (i.e., social capital) that affects managements voluntary disclosure practices.

scholarly journals The effect of disclosure regulation on the bias and accuracy of management earnings forecasts in Malaysian IPO prospectuses

2017 ◽  
Vol 15 (1) ◽  
pp. 59-77 ◽  
Author(s):  
Mohammed Abdullah Ammer ◽  
Nurwati A. Ahmad-Zaluki
Keyword(s):  
Initial Public Offering ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Multivariate Statistical ◽  
Disclosure Regulation ◽  
Content Type ◽  
Study Results ◽  
The Impact

Purpose This paper aims to examine the impact of disclosure regulation on the levels of bias and accuracy in management earnings forecasts disclosed in the prospectuses of Malaysian initial public offering (IPO). Specifically, the authors investigated the two environments of regulation (mandatory versus voluntary) to draw some conclusions regarding the benefits of regulating disclosure of management earnings forecasts. Design/methodology/approach A sample of 111 Malaysian IPOs listing on the Main Market of Bursa Malaysia from January 1, 2004 to February 29, 2012 was used. The paper uses both univariate and multivariate statistical analyses on this sample of IPOs. Findings The empirical results of these multivariate regressions indicated that disclosure regulation has positive and significant impact on the bias and accuracy of management earnings forecasts disclosed in IPO prospectus. In general, the study results suggest that using disclosure regulation to improve the quality of IPO earnings forecasts can be, to some extent, an effective strategy. Practical implications The findings of this study have important implications for regulators and investors. The findings can provide them some relevant insights on the improvements to the earnings forecasts accuracy and trends of the forecast (optimistic or pessimistic) after the change from mandatory to voluntary disclosure. Thus, the authorities may learn whether this change is an effective policy or whether the regime of mandatory disclosure was better for IPO companies and should be reversed. Originality/value This study is regarded as the first attempt to investigate the impact of reforms in disclosure regulation on the quality of management earnings forecasts of IPO prospectuses in a developing nation such as Malaysia. In spite of this, the paper focuses on a single country, and it contributes significant insights to the debate about the credibility of IPO management earnings forecasts.

scholarly journals The impact of litigation risk on corporate prospective disclosure: A review of the empirical literature

2012 ◽  
Vol 10 (1) ◽  
pp. 53-61 ◽  
Author(s):  
Gerry Gallery ◽  
Jodie Nelson ◽  
Chan Guo
Keyword(s):  
Earnings Forecasts ◽  
Empirical Literature ◽  
Future Research ◽  
Litigation Risk ◽  
Management Earnings Forecasts ◽  
Differential Impact ◽  
Disclosure Decisions ◽  
Secondary Factor ◽  
External Governance ◽  
The Impact

We review the literature on the impact of litigation risk (a form of external governance) on corporate prospective disclosure decisions as reflected in management earnings forecasts. From this analysis we identify four key areas for future research. First, litigation risk warrants more attention from researchers; currently it tends to be treated as a secondary factor impacting MEF decisions. Second, it would be informative from a governance perspective for researchers to explore why litigation risk has a differential impact on MEF decisions across countries. Third, understanding the interaction between litigation risk and forecast/firm-specific characteristics is important from management, investor and regulatory perspectives but is currently under-explored Last, research on the litigation risk and MEF attributes link is piecemeal and incomplete, requiring more integrated and expanded analysis.

Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes

2019 ◽  
Vol 94 (5) ◽  
pp. 247-272 ◽  
Author(s):  
Joel F. Houston ◽  
Chen Lin ◽  
Sibo Liu ◽  
Lai Wei
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Fixed Effect ◽  
Litigation Risk ◽  
Management Earnings Forecasts ◽  
Causal Inferences ◽  
Difference In Differences ◽  
Negative News ◽  
Effect Difference ◽  
Jel Classifications

ABSTRACT This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples, and outcome variables. JEL Classifications: D80; G14; K22; K41; M41.

scholarly journals The relationship between director independence, reputation and management earnings forecasts

2008 ◽  
Vol 6 (2) ◽  
pp. 404-419 ◽  
Author(s):  
Howard Chan ◽  
Robert Faff ◽  
Paul Mather ◽  
Alan Ramsay
Keyword(s):  
Audit Committee ◽  
Earnings Forecasts ◽  
Independent Director ◽  
Management Forecasts ◽  
Management Earnings Forecasts ◽  
Governance Environment ◽  
Prior Literature ◽  
The Impact ◽  
Director Independence ◽  
The Relationship

Informative management earnings forecasts potentially reduce information asymmetries in capital markets. We examine the relationship between corporate governance and management earnings forecasts. We extend the prior literature by examining the impact of independent director reputation on characteristics of management forecasts, by refining the previously used proxy for director independence and by distinguishing between routine and non-routine forecasts in the Australian governance environment. We find a significant positive relationship between the likelihood and frequency of firms issuing management earnings forecasts and our measures of audit committee independence and independent director reputation but not board independence. However, there is some evidence that director independence is related to more specific forecasts. These results are driven by routine earnings forecasts over which, it is argued, management have greater discretion.

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