Earnings Non-Synchronicity and Voluntary Disclosure

60 Pages Posted: 1 Sep 2009 Last revised: 14 Sep 2012

See all articles by Guojin Gong

Guojin Gong

Penn State University - Smeal College of Business

Laura Yue Li

University of Illinois at Urbana-Champaign

Ling Zhou

University of New Mexico

Date Written: September 10, 2012

Abstract

Earnings non-synchronicity reflects the extent to which firm-specific factors determine a firm’s earnings. Prior research suggests that high earnings non-synchronicity impedes corporate outsiders’ ability to process information. This study examines the impact of earnings non-synchronicity on managers’ decisions to provide earnings forecasts. We propose that high earnings non-synchronicity motivates managers to issue earnings forecasts to reduce information asymmetry between managers and investors and to preempt costly information acquisition by outsiders. Consistently, we find a positive relation between earnings non-synchronicity and managers’ propensity to issue earnings forecasts, particularly long-horizon forecasts. This positive relation is weaker when earnings are easier to predict based on the firm's earnings history and is stronger when the firm has higher institutional ownership and greater analyst following. We also find that the market’s reaction to management forecasts increases with earnings non-synchronicity. Overall, the evidence suggests that managers voluntarily provide earnings forecasts to alleviate the adverse consequences of earnings non-synchronicity. These findings provide a more complete picture about the impact of earnings non-synchronicity on a firm’s information environment, and highlight the effect of the nature of information asymmetry on voluntary disclosures.

Keywords: earnings non-synchronicity, voluntary disclosure, management earnings forecasts

JEL Classification: G14, M41

Suggested Citation

Gong, Guojin and Li, Yue Laura and Zhou, Ling, Earnings Non-Synchronicity and Voluntary Disclosure (September 10, 2012). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper; Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1465000 or http://dx.doi.org/10.2139/ssrn.1465000

Guojin Gong

Penn State University - Smeal College of Business ( email )

University Park, PA 16802
United States
814-863-7055 (Phone)

Yue Laura Li

University of Illinois at Urbana-Champaign ( email )

283 Wohlers hall 1206 South Sixth Street
1206 South Sixth Street
Champaign, IL 61820
United States
2172655086 (Phone)

Ling Zhou (Contact Author)

University of New Mexico ( email )

107 Humanitites Building
Albuquerque, NM 87131-1221
United States
(505)277-0335 (Phone)

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