The Effect of Multi-Nationality on the Precision of Management Earnings Forecasts

International Journal of Accounting, Auditing & Performance Evaluation, Vol. 4, No. 6, pp. 572-588, 2007

17 Pages Posted: 12 Mar 2010

See all articles by Bruce Runyan

Bruce Runyan

Western Carolina University

Murphy Smith

Texas A&M University-Corpus Christi-Department of Accounting

Date Written: 2007

Abstract

This study examines the relationship between a firm’s degree of multi-nationality and its managers’ earnings forecasts. Firms with a high degree of multi-nationality are subject to greater uncertainty regarding earnings forecasts due to the additional risk resulting from the more complex multinational environment. Prior research demonstrates that firms that fail to meet or beat market expectations experience disproportionate market losses at earnings announcement dates. The complexities and greater uncertainty resulting from higher levels of multi-nationality are expected to be negatively associated with management earnings forecast precision. Results indicate that precision of management earnings forecasts is significantly negatively related to multi-nationality (foreign sales/total sales and the number of geographic segments). These findings should be of interest to investors, analysts, and other stakeholders who make decisions based on management earnings forecasts. Findings should also be of interest to those interested in how multi-nationality affects business in general.

Keywords: management earnings forecasts, multinationality, financial reporting, precision

JEL Classification: F23, G15, G34, M41

Suggested Citation

Runyan, Bruce and Smith, Murphy, The Effect of Multi-Nationality on the Precision of Management Earnings Forecasts (2007). International Journal of Accounting, Auditing & Performance Evaluation, Vol. 4, No. 6, pp. 572-588, 2007. Available at SSRN: https://ssrn.com/abstract=1568348

Bruce Runyan

Western Carolina University ( email )

Cullowhee, NC 28723
United States

Murphy Smith (Contact Author)

Texas A&M University-Corpus Christi-Department of Accounting ( email )

6300 Ocean Dr
Corpus Christi, TX 78412
United States

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