AAA Spark Meeting of Regions

Do Rural Firms’ Managers Use Management Earnings Forecasts to Reduce Information Asymmetries with Investors?

• In Event: Strategic and Voluntary Disclosures

Abstract

How managers use voluntary disclosure in response to information asymmetry with investors is an important question in academic literature. In this paper, we investigate how informational asymmetries between managers and investors due to geographic locational distance to economic hubs in urban areas incentivize and drive rural firm managers to provide more management earnings forecasts. In line with the idea that rural firms’ managers provide more earnings forecasts to alleviate information asymmetries, managers provide more accurate and precise forecasts when disclosing bad news to “walk down” analysts’ expectations. We see that investors utilize these management earnings forecasts more for rural firms than urban firms as liquidity increases for these firms following forecasts. Our results are robust to entropy balancing techniques and specifications that address the self-selection of location choice.

Authors

• Joon Ho Kong, Fordham University

• Joseph Micale, Fordham University