Voluntary Disclosure and Earnings Asymmetric Timeliness
47 Pages Posted: 18 Jul 2016 Last revised: 15 Jan 2019
Date Written: January 14, 2019
Managers’ voluntary disclosure of forward-looking earnings information results in stock prices reflecting that information prior to the fiscal period when the corresponding earnings are announced. We predict that forward-looking management earnings forecasts (MFs) will lead to a weaker relation between contemporaneous returns and earnings, resulting in a predictable attenuation in earnings asymmetric timeliness measured using the Basu (1997) model (and related models). The intuition is that forward-looking disclosures such as MFs decouple the period in which prices reflect the earnings news from the future period in which the actual earnings related to the forecast will be recognized and announced. We find that earnings’ asymmetric timeliness is insignificant for firms issuing MFs of future-year earnings. Additional analysis rules out the alternative explanation that these findings are due to differences in the pattern of earnings recognition or total information flow in periods with forward-looking disclosures. An implication of our findings is that, in the presence of forward-looking managerial disclosures such as MFs, research on conservatism should exercise caution when attributing variation in asymmetric timeliness exclusively to the hypothesized determinants of conservatism.
Keywords: asymmetric timeliness of earnings, voluntary disclosure, management earnings forecasts, conservatism
JEL Classification: M4
Suggested Citation: Suggested Citation