Soft-Talk Management Cash Flow Forecasts: Verifiability, Credibility and Stock Price Effects

Cao, Yang; Wasley, Charles E.; Wu, Joanna Shuang

doi:10.2139/ssrn.874106

“…Dichev and Tang (2009) elaborate further on this relation. 14 A similar lack of uniformity in the definition of the forecasted cash flows is reported by Cao et al (2007) for management cash flow forecasts.…”

Section: Effect Of Data Quality On Accuracymentioning

confidence: 78%

The Quality of Analysts' Cash Flow Forecasts

Givoly

¹

,

Hayn

²

,

Lehavy

³

2009

The Accounting Review

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This study examines properties of analysts' cash flow forecasts and compares them to those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are less accurate than analysts' earnings forecasts and improve at a slower rate during the forecast period. Further, cash flow forecasts appear to be a naïve extension of analysts' earnings forecasts, thus providing limited information on expected changes in working capital. We also find that analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock returns. Finally, estimating expected accruals as the difference between analysts' earnings forecasts and their cash flow forecasts does not result in a better detection of earnings management than achieved by commonly used accrual models.

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“…Management voluntarily discloses certain information, such as revenue and cash flow guidance and explanations, along with its earnings guidance. Such additional disclosures have incremental effects on investors' reactions to management guidance (Baginski et al, 2000;Baginski et al, 2004;Cao, Wasley, & Wu, 2007;Han & Wild, 1991;Hirst, Koonce, & Venkataraman, 2007;Hutton et al, 2003). Attributions accompanying management guidance are classified as soft-talk (or cheap-talk) disclosures in the sense that those explanatory discussions are difficult to verify both ex ante and ex post (Hutton et al, 2003).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Investor reactions to management earnings guidance attributions: The effects of news valence, attribution locus, and outcome controllability

Wei

¹

,

Han²,

Tan

³

2016

Accounting, Organizations and Society

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We conduct two experiments to investigate how investors react to attributions accompanying management guidance. In our first experiment, we investigate the joint effect of attribution locus (external versus internal attribution) and guidance-news valence (positive versus negative guidance news) on investors' earnings judgments. We find that investors provide lower earnings estimates when management attributes negative guidance news to external factors than internal factors. When the guidance news is positive, the locus (internal versus external) of the attributions has no effect on investors' earnings estimates. In our second experiment, we separate out the effect of the attribution's outcome controllability (controllable versus uncontrollable) from that of attribution locus in a negative guidance news setting. We find that investors provide higher earnings estimates for internal/outcome controllable attributions than for internal/outcome uncontrollable attributions. Outcome controllability does not matter when attributions are external. Our study extends prior research by showing how the valence of management guidance and the characteristics of guidance attributions jointly influence investors' earnings judgments.

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“…Management voluntarily discloses certain information, such as revenue and cash flow guidance and explanations, along with its earnings guidance. Such additional disclosures have incremental effects on investors' reactions to management guidance (Baginski et al, 2000;Baginski et al, 2004;Cao, Wasley, & Wu, 2007;Han & Wild, 1991;Hirst, Koonce, & Venkataraman, 2007;Hutton et al, 2003). Attributions accompanying management guidance are classified as soft-talk (or cheap-talk) disclosures in the sense that those explanatory discussions are difficult to verify both ex ante and ex post (Hutton et al, 2003).…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Investor Reactions to Management Earnings Guidance Attributions: The Effects of News Valence, Attribution Locus, and Outcome Controllability

Chen¹,

Han

²

,

Tan

³

2016

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We conduct two experiments to investigate how investors react to attributions accompanying management guidance. In our first experiment, we investigate the joint effect of attribution locus (external versus internal attribution) and guidance-news valence (positive versus negative guidance news) on investors' earnings judgments. We find that investors provide lower earnings estimates when management attributes negative guidance news to external factors than internal factors. When the guidance news is positive, the locus (internal versus external) of the attributions has no effect on investors' earnings estimates. In our second experiment, we separate out the effect of the attribution's outcome controllability (controllable versus uncontrollable) from that of attribution locus in a negative guidance news setting. We find that investors provide higher earnings estimates for internal/outcome controllable attributions than for internal/outcome uncontrollable attributions. Outcome controllability does not matter when attributions are external. Our study extends prior research by showing how the valence of management guidance and the characteristics of guidance attributions jointly influence investors' earnings judgments.

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Soft-Talk Management Cash Flow Forecasts: Verifiability, Credibility and Stock Price Effects

Cited by 7 publications

References 20 publications

The Quality of Analysts' Cash Flow Forecasts

The Quality of Analysts' Cash Flow Forecasts

Investor reactions to management earnings guidance attributions: The effects of news valence, attribution locus, and outcome controllability

Investor Reactions to Management Earnings Guidance Attributions: The Effects of News Valence, Attribution Locus, and Outcome Controllability

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