The Effect of Legal Environment on Voluntary Disclosure: Evidence from Management Earnings Forecasts Issued in U.S. And Canadian Markets

Posted: 8 Sep 2001

See all articles by Stephen P. Baginski

Stephen P. Baginski

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

John M. Hassell

Indiana University Kelley School of Business Indianapolis

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business

Abstract

Citing fear of legal liability as a partial explanation, prior research documents (1) managers' reluctance to voluntarily disclose management earnings forecasts, and (2) higher forecast disclosure frequencies in periods of bad news. We provide evidence on how management earnings forecast disclosure differs between the United States (U.S.) and Canada, two otherwise similar business environments with different legal regimes. Canadian securities laws and judicial interpretations create a far less litigious environment than exists in the U.S. We find a greater frequency of management earnings forecast disclosure in Canada relative to the U.S. Further, although U.S. managers are relatively more likely to issue forecasts during interim periods in which earnings decrease, Canadian managers do not exhibit that tendency. Instead, Canadian managers issue more forecasts when earnings are increasing, and their forecasts are of annual rather than interim earnings. Also consistent with a less litigious environment, Canadian managers issue more precise and longer-term forecasts. These findings hold after controlling for other determinants of management earnings forecast disclosure that might differ between the two countries: firm size, earnings volatility, information asymmetry, growth, capitalization rates, and membership in high-technology and regulated industries.

JEL Classification: M41, M45, K22

Suggested Citation

Baginski, Stephen P. and Hassell, John M. and Kimbrough, Michael D., The Effect of Legal Environment on Voluntary Disclosure: Evidence from Management Earnings Forecasts Issued in U.S. And Canadian Markets. Accounting Review, January 2002, Forthcoming. Available at SSRN: https://ssrn.com/abstract=279797

Stephen P. Baginski (Contact Author)

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

Athens, GA 30602
United States

John M. Hassell

Indiana University Kelley School of Business Indianapolis ( email )

801 W. Michigan Street
Indianapolis, IN 46202-5151
United States

Michael D. Kimbrough

University of Maryland - Robert H. Smith School of Business ( email )

Robert H. Smith School of Business
College Park, MD 20742-9157
United States
301-405-8222 (Phone)
301-314-9414 (Fax)

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