Management Earnings Forecasts: A Review and Framework

The Impact of Fair Value Accounting on Corporate Disclosure

“…In particular, stock price volatility in China in recent years has been high, which increases earnings surprises. As a result, the demand for management forecasts increases, and managers have the motivation to issue more forecasts to reduce information asymmetry Hirst et al, 2008). For example, Coller and Yohn (1997) find that the bid-ask spread of firms making performance forecasts is significantly higher than that of firms that do not make forecasts, but after the forecasts have been made, there are no significant differences between the bid-ask spreads of the two groups of firms.…”

“…The prior literature mostly focuses on the characteristics and information content of management forecasts (Luo and Song, 2012;Li and Luo, 2014) but rarely examines the determinants. Theoretically speaking, issuing management forecasts is determined by the institutional environment and micro-level factors (Hirst et al, 2008). This paper explores this issue from a standard-setting perspective, which contributes to the line of research on corporate disclosure.…”

Is the provision of more timely earnings information good for the Chinese stock market? : evidence from investor reactions to management earnings forecasts

“…According to Hirst et al (2008), management earnings forecasts are voluntary managerial disclosures predicting earnings prior to the expected reporting data. Some researchers use the term "earnings guidance" synonymously with "earnings forecasts".…”

“…Management earnings forecasts were not always considered to be value relevant even in mature stock markets (Hirst et al 2008). Early research questioned whether investors rely on management earnings forecasts when making their decisions since they are subjective and unaudited.…”

“…A management earnings forecast is a managerial disclosure that estimates the forthcoming earnings information of a specific firm. If an earnings forecast contains information about a firm's future earnings and market participants are able to trade on this information without suffering from cognitive biases, an earnings forecast is able to reduce information asymmetry between insiders and outsiders and improve stock market efficiency by allowing inside information to be incorporated into stock prices earlier (Hirst et al 2008;Healy and Palepu 2001). However, recent studies on corporate disclosures suggests that more timely disclosure of corporate information can also lead to increased fluctuations in stock prices due to the presence of speculative activities and cognitive biases on the part of investors (Botosan and Plumlee 2002;Smith 2010).…”