The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts

Abstract

We investigate the relation of the board of directors and institutional ownership with the properties of management earnings forecasts. We find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently. In addition, these forecasts tend to be more specific, accurate and less optimistically biased. These results are robust to changes specification, Granger causality tests, and simultaneous equation analyses. The results are similar in the pre- and post-Regulation Fair Disclosure (Reg FD) eras. Additional analysis suggests that concentrated institutional ownership is negatively associated with forecast properties. This association is less negative in the post-Reg FD environment, which is consistent with Reg FD reducing the ability of firms to privately communicate information to select audiences. Copyright 2005 The Institute of Professional Accounting, University of Chicago.

Capital Market Consequences of Managers’ Voluntary Disclosure Styles

“…I control for firm size (SIZE) using the natural logarithm of market value of equity because prior studies find that larger firms tend to issue more accurate forecasts (Ajinkya, Bhojraj, and Sengupta 2005;Bhojraj, Libby, and Yang 2010). Firms that report losses may have more difficulty forecasting earnings, so I control for whether the firm reported a loss for the fiscal period.…”

“…Similarly, I control for return on assets (ROA) because prior research finds that disclosure is positively associated with firm performance. Ajinkya et al (2005) hypothesize that institutional investors and outside directors serve as monitors for firms' disclosures and find that firms with greater institutional ownership and more outside directors issue forecasts that are more specific, accurate, and less optimistically biased. Therefore, I…”

Capital structure of Chinese listed SMEs: an agency theory perspective

“…Bhojraj and Sengupta (2003) argue that effective corporate governance results in an efficient utilization of resources by managers, reduces default risk, and thereby lowers the cost of debt. More importantly, effective governance reduces information asymmetry by ensuring the release of credible financial information (Ajinya et al 2005) and restrains managers from using private information for their own interests at the expense of shareholders (Jensen and Meckling 1976;Myers and Majluf 1984). A study by Dasilas and Papasyriopoulos (2015) established that corporate governance structures and credit ratings play a significant role in the capital structure decisions of listed firms in Greece.…”

Ownership Structure and Earnings Forecast Accuracy: Evidence from Malaysian IPOs

“…In the context of different types of ownership, prior works examining the link between type of ownership structure and earnings forecast disclosure tends to focuses either on the institutional ownership [15], [16], management ownership [6], [17], or equity retained by owners [7], [8], [18] separately and found no relationship between ownership type and the accuracy of forecasts. This study on the other hand examines the impact of various ownership types including active-family ownership on the accuracy.…”