Does Company Reputation Matter for Disclosure Quality? Evidence from Management Earnings Forecasts

Abstract:     
In this study, we explore the association between company reputation and disclosure decisions as proxied for by management earnings forecasts. We suggest that reputation concerns will motivate companies to issue management earnings forecasts and affect the characteristics of these forecasts. Following Cao et al. (2012b), we proxy for company reputation using measures based on Fortune’s America’s Most Admired Companies List. For a sample of 11,694 company-year observations from 1995 through 2009, we find that companies with higher reputation scores are more likely to issue earnings forecasts, and they tend to issue more frequent and more precise forecasts than do other companies. We also find that for the subsample of companies selected to the Most Admired List, earnings forecasts issued by higher reputation companies are more accurate. Our study contributes to the voluntary disclosure literature by identifying a unique factor that motivates companies to voluntarily disclose better forward-looking information, and to the reputation literature by demonstrating the effect that company reputation has on company efforts to reduce the information asymmetry with stakeholders.

Number of Pages in PDF File: 44

Keywords: Company reputation, disclosure quality, management forecasts

JEL Classification: M41

working papers series