The Effect of Regulation FD on Management Earnings Forecasts
46 Pages Posted: 20 Sep 2008
Date Written: September 19, 2008
We investigate Regulation FD's effect on managers' earnings forecasts. FD's prohibition on private communication between managers and analysts alters the net benefits firms derive from public disclosure, which we hypothesize 1) simultaneously motivates some firms to stop and other firms to start providing management earnings forecasts, 2) reduces management earnings forecast optimism bias, 3) increases forecast accuracy, and 4) increases forecast informativeness. Our evidence is consistent with all four hypotheses. Thus, our evidence suggests that, although FD motivated some firms to stop forecasting, it improved most firms' forecast properties (more forecasts that are less biased, more accurate, and more informative).
Keywords: Capital markets; regulation, management earnings forecasts; disclosure
JEL Classification: G10, G38, K22, M41
Suggested Citation: Suggested Citation