Conditional Mandates on Management Earnings Forecasts: The Impact on the Cost of Debt

Wang, Kun Tracy; Zhu, Nathan Zhenghang

doi:10.1111/abac.12283

Cited by 7 publications

(7 citation statements)

References 78 publications

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“…They are also in line with the findings of Zhu et al. (2022) and Wang & Zhu (2023), which suggest that voluntary disclosures hold greater value for investors.…”

Section: Introductionsupporting

confidence: 91%

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Corporate social responsibility reporting and investment: Evidence from mergers and acquisitions

Wang,

2023

Business Fin & Account

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While corporate social responsibility (CSR) has played an increasingly important role in corporate decision‐making, the role of CSR disclosure in a firm's investment activities remains poorly understood. This study investigates the impact of CSR disclosure on mergers and acquisitions (M&As), which are pivotal investment activities. We find that firms disclosing voluntary CSR reports experience significantly stronger market reactions to M&A announcements than those that do not disclose such reports. Specifically, acquisitions by voluntary CSR disclosers achieve 1.2% higher returns upon acquisition announcements, leading to a substantial increase in shareholder value. Our findings are consistent across a series of robustness tests. Additional analyses suggest that the positive market reactions are especially tied to voluntary disclosures concerning the protection of employees and customers, and that the quality and financial materiality of voluntary CSR disclosures amplify positive market responses. We also find that voluntary CSR disclosers exhibit better long‐term post‐acquisition market and operational performance. Collectively, our findings suggest that voluntary CSR disclosures bolster acquisition returns by mitigating stakeholder resistance. Additionally, by leveraging the unique conditional CSR disclosure regulation in China and using a staggered DID design, we observe a diminished market reaction for acquirers following mandatory CSR disclosures. Overall, this research provides new insights into the contrasting effects of voluntary and mandatory CSR disclosures, emphasizing the vital role of effective stakeholder CSR communication in the success of M&As.

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“…They are also in line with the findings of Zhu et al. (2022) and Wang & Zhu (2023), which suggest that voluntary disclosures hold greater value for investors.…”

Section: Introductionsupporting

confidence: 91%

“…Our findings support the shareholder expense view of mandatory CSR reporting (Chen et al, 2018;Grewal et al, 2019). 2 They are also in line with the findings of Zhu et al (2022) and Wang & Zhu (2023), which suggest that voluntary disclosures hold greater value for investors.…”

Section: Introductionsupporting

confidence: 88%

Corporate social responsibility reporting and investment: Evidence from mergers and acquisitions

Wang,

2023

Business Fin & Account

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“…We obtained data on management earnings forecasts from I/B/E/S and excluded countries with no management forecast data during our sample period. Considering that these forecasts are mandatory in Japan and conditional mandatory in China (Wang and Zhu, 2022), owing to which, the decisions of managers in these countries regarding the quantity and quality of earnings forecast disclosures may differ from those of other countries, we also exclude firms from Japan and China from this analysis. In addition, for the regression of MF_PREC , the analysis sample is restricted to firm years that issue management forecasts.…”

Section: Additional Analysismentioning

confidence: 99%

Corporate Governance Reforms and Analyst Forecasts: International Evidence

Liu,

Wang,

2023

Abacus

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In this study, we examine the effect of worldwide corporate governance reforms on analyst forecasts using data on firms from 41 countries that have implemented such reforms. Employing a difference‐in‐differences design, we find robust evidence of a significant positive effect of these reforms, which mainly promote the independence of the audit committee and auditors, on analyst forecast accuracy. We also find significant improvements in post‐reform corporate governance structure and the quantity and quality of corporate disclosure, which validates the predicted economic mechanism of the impact of these reforms. Moreover, the reforms are effective in reducing analyst forecast bias and dispersion, suggesting an overall improvement in analyst forecast quality after reform implementation. Furthermore, we find a moderating effect of analyst general experience on the relationship of interest, which is consistent with the conjecture that improved corporate disclosures following reforms could be more beneficial for analysts with less experience. Overall, our findings shed new insights into how country‐level corporate governance reforms worldwide shape firms’ information environment.

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“…They usually interact directly with firm management and raise questions with top managers about various aspects of corporate strategy and performance through various channels, such as earnings release conferences and corporate site visits (Yu, 2008). From an agency perspective, analysts' gathering of private information can help detect managers' misbehavior; therefore, analysts are effective external monitors of firm management who can discipline firms for engaging in opportunistic managerial behavior by reducing information asymmetry between corporate insiders and outside investors (Healy & Palepu, 2001; Tsang, Wang, Wu, & Lee, 2022; Wang & Zhu, 2022; Wang, Luo, & Liu, 2022). Firms followed by more analysts are subject to more intense external monitoring; therefore, they should have better financial reporting quality.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Does the market reward meeting or beating analyst earnings forecasts? Empirical evidence from China

Luo

Wang

2022

CAFR

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PurposeUsing a sample of 9,898 firm-year observations from 1,821 unique Chinese listed firms over the period from 2004 to 2019, this study aims to investigate whether the market rewards meeting or beating analyst earnings expectations (MBE).Design/methodology/approachThe authors use an event study methodology to capture market reactions to MBE.FindingsThe authors document a stock return premium for beating analyst forecasts by a wide margin. However, there is no stock return premium for firms that meet or just beat analyst forecasts, suggesting that the market is skeptical of earnings management by these firms. This market underreaction is more pronounced for firms with weak external monitoring. Further analysis shows that meeting or just beating analyst forecasts is indicative of superior future financial performance. The authors do not find firms using earnings management to meet or just beat analyst forecasts.Research limitations/implicationsThe authors provide evidence of market underreaction to meeting or just beating analyst forecasts, with the market's over-skepticism of earnings management being a plausible mechanism for this phenomenon.Practical implicationsThe findings of this study are informative to researchers, market participants and regulators concerned about the impact of analysts and earnings management and interested in detecting and constraining managers' earnings management.Originality/valueThe authors provide new insights into how the market reacts to MBE by showing that the market appears to focus on using meeting or just beating analyst forecasts as an indicator of earnings management, while it does not detect managed MBE. Meeting or just beating analyst forecasts is commonly used as a proxy for earnings management in the literature. However, the findings suggest that it is a noisy proxy for earnings management.

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Conditional Mandates on Management Earnings Forecasts: The Impact on the Cost of Debt

Cited by 7 publications

References 78 publications

Corporate social responsibility reporting and investment: Evidence from mergers and acquisitions

Corporate social responsibility reporting and investment: Evidence from mergers and acquisitions

Corporate Governance Reforms and Analyst Forecasts: International Evidence

Does the market reward meeting or beating analyst earnings forecasts? Empirical evidence from China

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