Voluntary Disclosure, Management forecasts, Earnings volatility, Timing

Disclosures, Management forecasts, Informational content, Bad news disclosures

[This study examines the relative accuracy of analyst earnings forecasts prepared both before (prior forecasts) and after (posterior forecasts) voluntary management earnings forecasts. The motivation for the study stems directly from recent studies which document statistically significant stock price reactions associated with management forecasts. The results of these studies suggest that management conveys new (or inside) information about earnings through its forecasts. Based on these results, one would expect that management forecasts would be more accurate than prior analyst forecasts while management and posterior analyst forecasts would be equally accurate. This paper reports results fully consistent with both of these predictions. These results, however, are conditional upon caveats about the estimation dates for analyst forecasts used to classify them as prior or posterior. Several previous studies have also investigated similar issues but have produced conflicting results. The tests reported here are based on larger samples than those found in previous studies. This suggests that any accuracy differences between management and analysts are of such magnitude that they can be detected only in relatively large samples.]

Abstract ABSTRACT: This study examines the relative accuracy of analyst earnings forecasts prepared both before (prior forecasts) and after (posterior forecasts) voluntary management earnings forecasts. The motivation for the study stems directly from recent studies which document statistically significant stock price reactions associated with management forecasts. The results of these studies suggest that management conveys new (or inside) information about earnings through its forecasts. Based on these results, one would expect that management forecasts would be more accurate than prior analyst forecasts while management and posterior analyst forecasts would be equally accurate. This paper reports results fully consistent with both of these predictions. These results, however, are conditional upon caveats about the estimation dates for analyst forecasts used to classify them as prior or posterior Several previous studies have also investigated similar issues but have produced conflicting results. The tests reported here are based on larger samples than those found in previous studies. This suggests that any accuracy differences between management and analysts are of such magnitude that they can be detected only in relatively large samples.

We examine whether availability of higher quality financial information lessens investor losses during a period seen as a stock market crash. We focus on October 1929, which partly motivated sweeping financial reporting regulations in the 1930s. Using a sample of 540 common stocks traded on the New York Stock Exchange during October 1929, we find that the quality of firms’ financial reporting increases with managers’ incentives to supply higher quality financial information demanded by investors. Moreover, firms with higher quality financial reporting before October 1929 experienced smaller stock price declines during the market crash.

Abstract. This paper examines stock market behavior associated with interim earnings and marketing‐production disclosures by NYSE industrial corporations during 1905–10. Mean stock price changes are examined to assess whether these firms were more likely to disclose favorable information. We also examine the magnitude of price changes and trading volume to provide evidence on the credibility of these disclosures as perceived by investors. The sample and time period we examine enable us to evaluate the stock market effects of interim disclosures in a discretionary disclosure environment. We find no evidence that these firms were more likely to selectively disclose favorable interim information based on contemporaneous stock price changes. Also, no significant differences are detected in the incidence of interim disclosure before dividend or annual earnings increases compared to dividend cuts/omissions or annual earnings declines. We also document increased trading volume in the announcement week and prior weeks, but significant price changes are restricted to the preannouncement period. These results are driven by firms that do not frequently disclose interim information, and these firms' disclosures are frequently accompanied by concurrent news items (in particular, new financings). Price and volume results are weakly sensitive to the exclusion of cases with concurrent news items. Collectively, our results suggest no systematic tendency to disclose favorable information and managerial disclosures were at least partially credible in the early 20th century disclosure environment. Résumé. Les auteurs examinent la réaction du marché des valeurs mobilières à la publication d'information périodique relative aux bénéfices ainsi qu'à la production et au marketing, par les sociétés industrielles dont les titres étaient inscrits à la Bourse de New York durant la période 1905–1910 et s'intéressent aux variations du cours moyen des titres, afin d'évaluer si ces sociétés étaient davantage enclines à publier de l'information favorable. Ils examinent également l'ampleur des variations du cours des titres et du volume des opérations afin d'établir comment les investisseurs percevaient la crédibilité de l'information publiée. Les variations du cours des titres observées à l'époque ne permettent pas de conclure que ces sociétés étaient davantage enclines à sélectionner l'information périodique la plus favorable, et les auteurs ne détectent pas non plus de différences significatives dans les conséquences de la publication d'information périodique préalablement à des hausses de dividendes ou de bénéfices annuels, par rapport à des réductions ou des omissions de dividendes ou des diminutions des bénéfices annuels. Dans l'ensemble, les résultats portent à croire qu'il n'y a pas de tendance systématique à la publication d'information favorable, et que l'information publiée par la direction est au moins en partie crédible dans le contexte du début du XX e siècle.

Abstract We investigate the extent to which income measurement by major early 20th‐century U.S. railroads shows evidence of lower income smoothness and increased conservatism following new fixed asset accounting rules issued by the Interstate Commerce Commission (ICC) in 1907 and 1908 and concurrent rate regulation regime shifts. Accounting rules promulgated by the ICC after the Hepburn Act of 1906 are the first accounting rules in U.S. history in which regulators could enforce such rules under federal law to increase compliance. Our samplewide results are more consistent with increased conservatism than with income smoothing. Additional tests indicate these effects are more pronounced for firms subject to more intense rate regulation by the ICC, which suggests that the tie‐in between accounting regulation and product/service market regulation influences how managers respond to new accounting rules.

We provide evidence on the relevance of earnings for valuation of NYSE common stocks from 1927-93. Based on a time series analysis of the explanatory power of yearly earnings-returns regressions, we investigate whether earnings relevance has increased following: (1) the empowerment of the Committee on Accounting Procedure (CAP) in 1939 as the first U.S. standard-setting body, and (2) subsequent reorganizations of the standard-setting process which led to the establishment of the Accounting Principles Board (APB, 1959-73) and the Financial Accounting Standards Board (FASB, 1973-Present). Income measurement and disclosure has been a central focus of accounting policymakers throughout the period covered by our study. In the early 1930's, the American Institute of Accountants (forerunner of the AICPA) emphasized the cardinal importance of income as explained by the fact that the value of a business is dependent mainly on its earning capacity (see AIA [1934]). Over 40 years later, the FASB in Statement of Financial Accounting Concepts #1 adopted a similar view when it concluded that the primary focus of financial reporting is on earnings and its components. Our analyses provide little evidence suggesting that the mean and median explanatory power (i.e., adjusted R2) of yearly returns-earnings regressions are significantly higher following empowerment of the CAP in 1939 and subsequent reorganizations leading to creation of the APB and FASB. We find weak evidence of a higher median during the CAP?s tenure (1939-59) compared to the Pre-CAP era (1927-38), but this result is not robust under alternate specifications of our primary tests where either yearly rank regressions are used, losses are excluded from the sample, or operating income is used in lieu of net income in the yearly regressions. We also estimate yearly models where stock price is regressed against earnings and book value similar to other recent longitudinal studies (e.g., Collins, Maydew, and Weiss [1997] and Francis and Schipper [1997]). Results of tests examining incremental earnings relevance in price regressions are consistent with results based on earnings-returns regressions: we find no evidence indicating that the valuation relevance of earnings has significantly increased since the initiation of U.S. standard-setting in 1939. Consistent with evidence in these other studies, we document a highly significant increase in the combined relevance of earnings and book value during the FASB?s tenure compared to the APB era. However, this result is largely the artifact of abnormally low relevance in the APB era. For instance, the combined relevance of earnings and book value is lowest during the APB?s tenure (1960-73), but the combined relevance of earnings and book value in the FASB era is similar to that observed during the Pre-CAP and CAP periods.

Intangible assets, Stock price, SEC, Capitalization

Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Share Icon Share Facebook Twitter LinkedIn Email Tools Icon Tools Get Permissions Search Site Cite View This Citation Add to Citation Manager Citation Gregory B. Waymire; Neuroscience and Ultimate Causation in Accounting Research. The Accounting Review 1 November 2014; 89 (6): 2011–2019. https://doi.org/10.2308/accr-50881 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentThe Accounting Review Search Advanced Search