Disaggregating Management Forecasts to Reduce Investors’ Susceptibility to Earnings Fixation

2011 ◽  
Vol 86 (1) ◽  
pp. 185-208 ◽  
Author(s):  
W. Brooke Elliott ◽  
Jessen L. Hobson ◽  
Kevin E. Jackson
Keyword(s):  
Voluntary Disclosure ◽  
Experimental Results ◽  
Management Forecasts ◽  
Net Income ◽  
Earnings Guidance ◽  
Earnings Announcement ◽  
Management Forecast ◽  
Important Input ◽  
Potential Alternative ◽  
Management Disclosures

ABSTRACT: This study examines disaggregated management forecasts as a mechanism to reduce investors’ fixation on announced earnings. Our experimental results suggest that investors’ earnings fixation is reduced when they initially observe a disaggregated management forecast (earnings and its components) versus when they observe an aggregated forecast (earnings only). We also provide theory-consistent evidence that this reduction in earnings fixation is associated with investors interpreting the summary net income figure as one of several similarly important evaluation inputs rather than a substantially more important input (relative to its components). Finally, we provide evidence that suggests our results are not bounded by the level of emphasis on net income in the subsequent earnings announcement, and not fully explained by three plausible alternative explanations. Our study extends the voluntary disclosure literature by providing evidence that the form of management disclosures can influence investors’ interpretation of subsequently announced information, and contributes to practice by providing a potential alternative to stopping earnings guidance.

scholarly journals Information Externalities and Voluntary Disclosure: Evidence from a Major Customer's Earnings Announcement

2020 ◽  
Vol 95 (6) ◽  
pp. 73-96
Author(s):  
Young Jun Cho ◽  
Yongtae Kim ◽  
Yoonseok Zang
Keyword(s):  
Supply Chain ◽  
Voluntary Disclosure ◽  
Data Availability ◽  
Earnings Guidance ◽  
Future Prospects ◽  
Earnings Announcement ◽  
Supply Chain Relationships ◽  
Information Transfers ◽  
Positive Effect

ABSTRACT We examine the relation between information externalities along the supply chain and voluntary disclosure. Information transfers from a major customer's earnings announcement (EA) can substitute for its supplier's disclosure. Conversely, if the customer's EA increases uncertainties regarding the supplier's future prospects, it can increase the demand for disclosure. After controlling for information incorporated in supplier returns, we find that the supplier is more likely to issue earnings guidance after the customer's EA when the EA news deviates more from the market's expectation. The positive effect of the customer's news on earnings guidance is weaker when common investors, supply-chain analysts, or a common industry allow investors to better understand the value implications of the news, while the effect increases with the importance of the customer to the supplier. The effect is also stronger when EA news is negative rather than positive. Collectively, the results suggest that supply-chain relationships influence voluntary disclosure. Data Availability: All data are publicly available from sources indicated in the text.

Cross-Listings and Voluntary Disclosure: International Evidence

2019 ◽  
Vol 4 (2) ◽  
pp. 89-113 ◽  
Author(s):  
Long Chen ◽  
Yashu Dong ◽  
Jeff Ng ◽  
Albert Tsang
Keyword(s):  
Voluntary Disclosure ◽  
Accounting Standards ◽  
Institutional Ownership ◽  
Management Forecasts ◽  
Listed Firms ◽  
International Evidence ◽  
Management Forecast ◽  
Cross Listing ◽  
International Setting ◽  
Foreign Institutional Investors

This paper examines changes in firms' disclosure behavior around cross-listings. Using an international setting, we find significant differences in management forecast likelihood and frequency between cross-listed firms and firms with similar characteristics but that are not cross-listed; particularly when differences in accounting standards between a cross-listed firm's home and target countries are larger. Further, we find that firms choosing to cross-list in target countries with larger accounting standards differences tend to provide more voluntary disclosure during the two years preceding a new cross-listing, rather than during the earlier time periods or the period after cross-listing, and such voluntary disclosure helps firms attract more foreign institutional ownership in their cross-listing target countries. Collectively, our evidence suggests that although differences in accounting standards across countries deter firms' cross-listing activities, cross-listed firms, by providing more management forecasts voluntarily, preemptively alleviate the information disadvantage faced by foreign institutional investors.

scholarly journals The Effect of Ex Ante Management Forecast Accuracy on the Post-Earnings-Announcement Drift

2012 ◽  
Vol 87 (5) ◽  
pp. 1791-1818 ◽  
Author(s):  
Li Zhang
Keyword(s):  
Earnings Announcements ◽  
Forecast Accuracy ◽  
Data Availability ◽  
Management Forecasts ◽  
Composite Measure ◽  
Earnings Announcement ◽  
Post Earnings Announcement Drift ◽  
Management Forecast ◽  
Ex Ante

ABSTRACT I examine the effect of ex ante management forecast accuracy on the post-earnings-announcement drift when management forecasts about next quarter's earnings are bundled with current quarter's earnings announcements. I build a composite measure of ex ante management forecast accuracy that takes into account forecast ability, forecast difficulty, and forecast environment. The results show that the bundled forecasts with higher ex ante accuracy mitigate investors' under-reaction to current earnings and reduce the magnitude of the post-earnings-announcement drift. Data Availability: The data used in this paper are available from the sources listed in the text.

(Dis)aggregated earnings forecasts and acquisition financing

2019 ◽  
Vol 28 (2) ◽  
pp. 255-271
Author(s):  
Paul Ordyna
Keyword(s):  
Voluntary Disclosure ◽  
Logistic Model ◽  
Earnings Forecasts ◽  
Merger And Acquisition ◽  
Management Forecasts ◽  
Earnings Guidance ◽  
Content Type ◽  
True Value ◽  
Acquiring Firms ◽  
Management Guidance

Purpose The purpose of this paper is to examine how a firm’s mergers and acquisitions (M&A) goals influence its voluntary disclosure policy. Specifically, this paper examines how a firm’s M&A financing intentions influence the degree of aggregation in management guidance prior to and after the M&A transaction. Design/methodology/approach Using a logistic model, this study tests the relation between M&A financing and the decision to issue disaggregate earnings guidance for 3,929 acquiring firms from 2007 to 2011. Findings The logistic regression results show that firms are more likely to provide disaggregate earnings guidance when using mostly stock to finance M&A and that the incentives to disaggregate guidance vary throughout the M&A transactional window. Alternatively, because the value of cash is independent of the true value of the acquirer, the results show that firms offering mostly cash to finance M&A are less likely to issue disaggregate earnings forecasts. Additional analysis reveals that the decision to issue disaggregate earnings guidance also influences post-merger outcomes such as CEO turnover. Research limitations/implications The choice to disaggregate earnings guidance and the choice to use stock as a means to finance an acquisition is made by management, thus are endogenous which could introduce bias. Originality/value This study provides insights into management’s incentives and attitudes toward the use of management forecasts to effect a potential merger and acquisition. Given the flexibility management has in issuing voluntary forecasts, management can tailor a financial message toward investors and potential targets in attempt to facilitate a merger and acquisition and to further the firm’s goals.

scholarly journals The Reaction Of Analysts To Management Disclosures And Firm Characteristics: Conservatism And Corporate Governance

2016 ◽  
Vol 32 (6) ◽  
pp. 1629
Author(s):  
Kyunbeom Jeong
Keyword(s):  
Earnings Forecasts ◽  
Good News ◽  
Managerial Ownership ◽  
Specific Situation ◽  
Management Forecasts ◽  
Firm Characteristics ◽  
Management Forecast ◽  
Low Levels ◽  
Management Disclosures ◽  
High Level

This paper examines the effect of firm characteristics on analyst reaction to management disclosures. Prior studies have overlooked the fact that analysts can react differently as a result of firm characteristics that can affect the management forecasts’ credibility and usefulness, as well as specific situation like SEO or management forecast characteristics itself. This study extends this line of research by considering firm characteristics after controlling for factors with respect to management forecast characteristics that may affect analyst reaction. I provide evidence that good news management disclosures by firms with high levels of conservatism have more impact to the analysts; therefore, analysts react more to good news management disclosures issued by firms with a high level of conservatism than good news management disclosures that are issued by firms with low levels of conservatism. Similarly, the study finds that analysts react less to bad news management disclosure issued by firms with a high level of conservatism. I also find that analysts have a stronger reaction to management disclosures announced by firms with strong governance and a lower level of managerial ownership. These results show that firm characteristics are also factors that are considered by analysts in the revision of their earnings forecasts following management disclosure.

Information Technology Capability, Management Forecast Accuracy, and Analyst Forecast Revisions

2018 ◽  
Vol 32 (3) ◽  
pp. 49-70 ◽  
Author(s):  
Feiqi Huang ◽  
He Li ◽  
Tawei Wang
Keyword(s):  
Forecast Accuracy ◽  
Analyst Forecast ◽  
Management Forecasts ◽  
Forecast Revisions ◽  
It Capability ◽  
Management Forecast ◽  
Prior Literature ◽  
Technology Capability ◽  
Information Technology Capability ◽  
The Relationship

SYNOPSISPrior literature has firmly established the relationship between IT capability and firm performance. In this paper, we extend the research in this field and investigate (1) whether IT capability contributes to management forecast accuracy, and (2) whether IT capability improves the informativeness of management forecasts and enhances the extent to which analysts incorporate management forecasts in their revisions. Using firms listed on InformationWeek 500 as our high IT capability group, we empirically demonstrate that firms with high IT capability are able to increase management forecast accuracy, and that analysts incorporate more information from management forecasts in their revisions if the firm has high IT capability.

scholarly journals CEO Career Concerns And Voluntary Disclosure

2016 ◽  
Vol 32 (6) ◽  
pp. 1603 ◽  
Author(s):  
Soo Yeon Park ◽  
Kwan Hee Yoo
Keyword(s):  
Labor Market ◽  
Chief Executive Officers ◽  
Voluntary Disclosure ◽  
Chief Executive ◽  
Career Concerns ◽  
Management Forecasts ◽  
Ceo Tenure ◽  
Disclosure Decisions ◽  
Executive Officers

This paper investigates the relation between Chief Executive Officers (CEO) career concerns and voluntary disclosures using listed firm (KOSPI) data in Korea. Prior research suggests that explicit incentives in the form of CEO stock-based compensation or CEO’s equity ownership mitigate the agency problems of reluctance to make voluntary disclosure. In addition, implicit incentives arising from CEO career concerns are as important as explicit incentives for mitigating agency problems.The labor market assesses CEOs ability and CEO reputation in the market is a valuable asset that is associated with many long-term benefits, such as better future compensation, reappointment in the position, and greater managerial autonomy. CEOs are concerned about such an assessment and these concerns are referred to as career concerns. However, the market has incomplete information about CEOs’ ability especially when the CEOs have short tenures as a CEO position. Hence, CEOs with short tenures have more strong incentives to signal their ability to the labor market so that they can build proper reputation.Implicit incentives arising from CEO career concerns are measured by CEO tenure. I assume that short-tenured CEOs are more career-concerned than long-tenured CEOs. I find that CEOs with short tenures tend to more likely disclose management forecasts. I interpret this result that more career-concerned CEOs have strong incentives to signal their ability to the labor market in order to build their reputations which affect their future payoffs such as compensations and reappointment. In addition, management forecasts, means of voluntary disclosure, are used as effective mechanism. I also find that CEOs with short tenures tend to disclose more accurate management forecasts. This result implies that CEOs with more career concerns have more pressure to provide accurate forecasts because of their reliability in the labor market. Based on these empirical results, I infer that CEOs’ implicit incentives affect their voluntary disclosure decision.This study will contribute to academics and disclosure-related practitioners by documenting about CEOs’ career concerns and their voluntary disclosure decisions.

Deposit Supply and Bank Transparency

2021 ◽  
Author(s):  
Liangliang Jiang ◽  
Ross Levine ◽  
Chen Lin ◽  
Wensi Xie
Keyword(s):  
Voluntary Disclosure ◽  
Information Disclosure ◽  
Cost Benefit ◽  
Technological Innovations ◽  
External Funding ◽  
Earnings Guidance ◽  
Funding Sources ◽  
Bank Deposits ◽  
Bank Managers ◽  
The Cost

Does a bank’s dependence on different external funding sources shape its voluntary disclosure of information? We evaluate whether economic shocks that increase the supply of bank deposits alter the cost–benefit calculations of bank managers concerning voluntary information disclosure. We measure information disclosure using 10-K filings, 8-K filings, and earnings guidance. As for the funding shock, we use unanticipated technological innovations that triggered shale development and booms in bank deposits. Further analyses suggest that greater exposure to shale development reduced information disclosure by relaxing the incentives for managers to disclose information to attract funds from external capital markets. This paper was accepted by Kay Giesecke, finance.

Sign in / Sign up

Export Citation Format

Share Document