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
Date Written: 2007
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: Suggested Citation