Forward-Looking Disclosures, Financial Verifiability and Analysts' Forecasts: A Study of Cross-Listed European Firms

Posted: 28 Oct 2008 Last revised: 22 Oct 2009

See all articles by Saverio Bozzolan

Saverio Bozzolan

Luiss Guido Carli University - Department of Business and Management

Marco Trombetta

IE Business School - IE University

Sergio E. Beretta

Bocconi University - Department of Accounting; SDA Bocconi

Date Written: October 27, 2008

Abstract

Forward-looking disclosures are a crucial source of information when valuing a company. We study the effect of forward-looking disclosures on analysts' forecast properties, in particular accuracy and dispersion. Our sample includes all the non-financial firms from Italy, Germany, France and Switzerland that in year 2002 were cross-listed on local stock exchanges and on the New York Stock Exchange. We conduct a content analysis on the Annual Report and the 20F form of these companies for the years 2002, 2003 and 2004. We differentiate between forward-looking information on the basis of the disclosure of expected effects on future financial performance and the disclosure of a measure of this impact. We define forward looking information disclosed with the characteristics of being quantified and directed (and financial) as financially verifiable as it facilitates the comparison with its subsequent realisation in relation to expected future financial performance. Our analysis finds support for the theoretical prediction that verifiable disclosures are more effective than unverifiable disclosures at improving accuracy and reducing dispersion of analysts' forecasts. Our sample also allows us to explore the effects of the difference between the degrees of verifiability between forward-looking disclosures of the 20F form versus those of the domestic annual report. Our analysis provides empirical support for the hypotheses that these differences are significant and have a significant effect on forecast properties.

Keywords: forward-looking disclosure, financial analysts, forecast dispersion and accuracy, cross-listing, Annual Report and 20F, (financially) verifiable information

JEL Classification: M41, M45, M47, G14, G29

Suggested Citation

Bozzolan, Saverio and Trombetta, Marco and Beretta, Sergio E., Forward-Looking Disclosures, Financial Verifiability and Analysts' Forecasts: A Study of Cross-Listed European Firms (October 27, 2008). European Accounting Review, Vol. 18, No. 3, pp. 435-473, October 2008. Available at SSRN: https://ssrn.com/abstract=1290569

Saverio Bozzolan (Contact Author)

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

Via Salvini, 3
Rome, 00198
Italy

Marco Trombetta

IE Business School - IE University ( email )

Calle Maria de Molina 12
Madrid, Madrid 28006
Spain

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

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