The Effect of Geographic Diversity on Managerial Earnings Forecasts
European Accounting Review, forthcoming
82 Pages Posted: 15 Aug 2012 Last revised: 20 Oct 2022
Date Written: May 31, 2014
Abstract
We examine whether geographic diversity – a salient characteristic of the firm’s organizational structure – affects the timing and quality of voluntary disclosure. We find that firms with higher geographic diversity issue earnings forecasts that are more pessimistic, less precise, and less accurate. We also find that firms with higher geographic diversity are more likely to bundle managerial earnings forecasts with the prior quarter’s earnings announcement and less likely to issue forecasts during the quarter. These results are consistent with geographic diversity increasing information acquisition costs associated with providing managerial earnings forecasts. Consistent with these findings, we provide evidence consistent with managers substituting managerial earnings forecasts with firm-initiated non-earnings press releases, which require less information acquisition, and that managerial earnings forecasts are less useful to analysts and investors when geographic diversity is higher. Overall, our findings suggest that a firm’s organizational complexity is a factor that shapes the information environment of the firm.
Keywords: Organizational Complexity; Geographic Diversity; Management Earnings Forecasts; Press Releases; Information Acquisition Costs
JEL Classification: M40, M41
Suggested Citation: Suggested Citation
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