The issuance and informativeness of management long- term earnings growth forecasts

Lucile Faurel, T. D. Haight, Andreas Simon

Research output: Contribution to journalArticle

Abstract

This study examines quantitative long-term earnings growth (LTG) forecasts issued by publicly traded firms. While the difficulty of verifying management LTG forecasts provides incentives for self-serving disclosures, we find that stakeholder interests and forecast credibility considerations significantly constrain such tendencies. In particular, we find that demand from market participants, information asymmetry, peer LTG forecast provision, product market competition, and industry profitability drive management LTG forecast issuance, while poor performance and high uncertainty over firm growth prospects deter management LTG forecast issuance. Moreover, we provide evidence that management LTG forecasts, on average, provide incremental information about future earnings growth, and that high competition and investor monitoring increase LTG forecast informativeness, consistent with predictions of theoretical cheap talk models. Our findings also indicate that both upward and downward LTG guidance provide incremental information about future earnings growth, and that analysts revise their LTG forecasts in the direction of LTG guidance. Overall, our study contributes to the voluntary disclosure literature by providing evidence that suggests elements of a firm’s disclosure environment significantly influence the issuance and informativeness of difficult-to-verify disclosures.

Original languageEnglish (US)
Pages (from-to)1-27
Number of pages27
JournalAccounting Horizons
Volume32
Issue number3
DOIs
StatePublished - Sep 1 2018

Fingerprint

Informativeness
Earnings growth
Disclosure
Incremental
Guidance
Firm growth
Product market competition
Incentives
Information asymmetry
Industry profitability
Cheap talk
Uncertainty
Stakeholders
Voluntary disclosure
Credibility
Monitoring
Investors
Analysts
Peers
Prediction

Keywords

  • Analysts
  • Earnings guidance
  • Long-term growth
  • Management forecast

ASJC Scopus subject areas

  • Accounting

Cite this

The issuance and informativeness of management long- term earnings growth forecasts. / Faurel, Lucile; Haight, T. D.; Simon, Andreas.

In: Accounting Horizons, Vol. 32, No. 3, 01.09.2018, p. 1-27.

Research output: Contribution to journalArticle

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