Cost of Capital Free-Riders
The Accounting Review, Forthcoming
Posted: 9 Dec 2013 Last revised: 19 Dec 2015
Date Written: August 18, 2015
We document the interrelationship of disclosure policy decisions by providing evidence that the cessation of quarterly management forecast guidance by 656 firms (“stoppers”) during 2004-2009 is associated with a pursuant increase in quarterly forecasts by previously non-forecasting firms in the same industries (“free-riders”). Increased forecasting by free-riders is positively associated with the information loss in the industry (proxied by the number of stoppers in the industry, the strength of previously-existing information transfer relations between the stopper and free-rider, and whether the stopper and free-rider are peer firms) and the importance of the information loss to the free-rider (proxied by analyst following and the existence of new share issues). Following the cessation event, free-rider cost of capital decreases as a function of the extent to which free-riders immediately initiate quarterly forecasting.
Keywords: Management forecasts, disclosure policy, cost of capital, information transfer, free-rider
JEL Classification: M41
Suggested Citation: Suggested Citation