Quality Versus Quantity: The Case of Forward-Looking Disclosure

49 Pages Posted: 4 Sep 2007

See all articles by Sergio E. Beretta

Sergio E. Beretta

Bocconi University - Department of Accounting; SDA Bocconi

Saverio Bozzolan

Luiss Guido Carli University - Department of Business and Management

Abstract

Empirical studies do not make a clear distinction between the quantity and quality of disclosure. As it is generally assumed that the quantity of information has an implication in determining its quality, quantity measures are often used as proxy for disclosure quality. Nonetheless the measurement of the quality of disclosure is recognized as a relevant question that is still open and the importance of developing measures of disclosure quality is emphasised in literature.

This paper disputes the idea that the quantity of disclosure is a sound proxy for the quality of disclosure. The adoption of multidimensional frameworks for the appreciation of disclosure is discussed and an index for quality disclosure is proposed. Moving from the assumption that high quality information should usefully support external users in the judgement of past and future performance, we hypothesize that high quality disclosure is positively associated with accuracy and negatively associated with the dispersion of analysts' earnings forecasts.

We show analytically that the proposed framework captures dimensions of annual report disclosure that are considered useful by financial analysts in forecasting earnings and that the proposed measure of disclosure quality has a stronger positive statistical association with accuracy and a stronger negative association with the dispersion of financial analysts' earnings forecasts than a simple index of disclosure quantity has.

Keywords: measures of disclosure, annual report disclosure quantity, annual report disclosure quality, forward looking information and earnings forecasts

JEL Classification: M41, M45, G29, G14

Suggested Citation

Beretta, Sergio E. and Bozzolan, Saverio, Quality Versus Quantity: The Case of Forward-Looking Disclosure. Journal of Accounting, Auditing and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1011179

Sergio E. Beretta

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

SDA Bocconi ( email )

Via Bocconi 8
Milan, Milan 20136
Italy

Saverio Bozzolan (Contact Author)

Luiss Guido Carli University - Department of Business and Management ( email )

Via Salvini, 3
Rome, 00198
Italy

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