Management Earnings Forecasts and Forward-Looking Statements

• In Event: New Measures of Voluntary Disclosure

Abstract

Firms provide a significant amount of forward-looking disclosure to investors, but only a small fraction of that disclosure is provided in the form of quantitative earnings forecasts. We use textual analysis to examine managers’ disclosures of forward-looking statements, looking at both earnings-related and non-earnings-related prospective statements. We find that earnings-related forward-looking statements are similar to traditionally-studied (i.e., First Call) earnings forecasts, in terms of both determinants and investor response. However, we show that the vast majority of forward-looking statements (~80%) do not refer directly to earnings or earnings components and, more importantly, are significantly different from earnings-related statements. For example, while managers are less likely to issue earnings forecasts when uncertainty is high, they issue more non-earnings-related forward-looking statements when uncertainty is high. This suggests that, contrary to results in prior literature, managers may actually respond to increased investor demand for information by issuing more forward-looking statements, but do so in ways that prior research has overlooked. In short, the well-documented attributes of quantitative earnings forecasts cannot be extended to most forward-looking statements.

Authors

• Zahn Bozanic, The Ohio State University

• Darren T Roulstone, The Ohio State University

• Andrew Van Buskirk, The Ohio State University