Asymmetric Effects of Regulation FD on Management Earnings Forecasts

Posted: 4 May 2015

See all articles by Frank Heflin

Frank Heflin

University of Georgia - J.M. Tull School of Accounting

William Kross

State University of New York (SUNY) at Buffalo - Department of Accounting

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management

Date Written: April 27, 2015

Abstract

We document that the effect of Regulation Fair Disclosure (FD) on public management earnings forecasts (MFs) is asymmetric. Our results suggest FD increased managers’ use of MFs as a downward guidance mechanism to help achieve meeting or beating earnings expectations. This effect is more pronounced when existing analyst forecasts are optimistic and when firms had selective disclosure policies pre-FD. We also find that the increased use of MFs as downward guidance leads to post-FD reductions in MF quality (accuracy and informativeness) for the downward guiding MFs that are most likely meet/beat motivated, while quality improves for upward guiding MFs. Finally, our evidence suggests that results from prior research about FD-induced changes in information environment variables, such as analyst forecast quality and investor trading activities, depend on whether the firm issues MFs and whether those MFs are downward guiding.

Keywords: management earnings forecasts; downward guidance; regulation; voluntary disclosure

JEL Classification: G18; G28

Suggested Citation

Heflin, Frank and Kross, William and Suk, Inho, Asymmetric Effects of Regulation FD on Management Earnings Forecasts (April 27, 2015). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2602061

Frank Heflin

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706-542-1616 (Phone)
706-542-3630 (Fax)

William Kross

State University of New York (SUNY) at Buffalo - Department of Accounting ( email )

Buffalo, NY 14260
United States

Inho Suk (Contact Author)

State University of New York (SUNY) at Buffalo - School of Management ( email )

342 Jacobs Management Center
Buffalo, NY 14260-4000
United States
716-645-3215 (Phone)

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