The Role of Supplementary Statements with Management Earnings Forecasts

Abstract

We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as either qualitative "soft talk" disclosures or verifiable forward-looking statements. We find that managers provide "soft talk" disclosures with similar frequency for good and bad news forecasts, but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that bad news earnings forecasts are always informative but that good news forecasts are informative only when supplemented by verifiable forward-looking statements, suggesting that these statements bolster the credibility of good news forecasts.

JEL Classification: M41, M43, M45