Extreme Uncertainty and Forward-Looking Disclosure Properties

42 Pages Posted: 26 Jun 2017

See all articles by Julia Krause

Julia Krause

BMW Group

Thorsten Sellhorn

Ludwig-Maximilians-Universitaet (LMU) Munich; TRR 266 Accounting for Transparency

Kamran Ahmed

La Trobe Business School, La Trobe University

Date Written: August 24, 2016


This study investigates the effect of extreme uncertainty on disclosure behavior by analyzing the quality and quantity of forward-looking disclosures during the global financial crisis and pre-crisis periods, controlling for other determinants of disclosure behavior. Prior research has struggled to distinguish between the quality and quantity dimensions of forward-looking disclosures. Also, the impact of the recent financial crisis on these forward-looking disclosure attributes has not yet been examined systematically. We address this gap by exploiting the unique setting of German publicly traded firms. These firms must provide forward-looking information within their audited financial statements, although relevant regulation is sufficiently vague to allow great variation in the quality, scope and quantity of forward-looking disclosures actually observed. Using hand-collected data from 2005 to 2009, we provide evidence of a significantly negative association between crisis and disclosure quality. This finding is robust to several different disclosure quality proxies and regression specifications. In contrast, we find no negative significant relation between crisis and disclosure quantity; rather, there is evidence that reported volume increases during the crisis. Our results are consistent with extreme uncertainty, as occurring during times of crisis, negatively affecting the quality of voluntary disclosures, while firms maintain or increase disclosure quantity, ultimately diluting the information density of forward-looking disclosures.

Keywords: voluntary disclosure, forecasts, crisis, uncertainty, forward-looking report, disclosure quality

JEL Classification: G01, G17, M41

Suggested Citation

Krause, Julia and Sellhorn, Thorsten and Ahmed, Kamran, Extreme Uncertainty and Forward-Looking Disclosure Properties (August 24, 2016). Available at SSRN: https://ssrn.com/abstract=2991996 or http://dx.doi.org/10.2139/ssrn.2991996

Julia Krause

BMW Group ( email )


Thorsten Sellhorn (Contact Author)

Ludwig-Maximilians-Universitaet (LMU) Munich ( email )

Ludwigstr. 28 RG IV
Munich, Bavaria 80539
+49(0)89-21806264 (Phone)
+49(0)89-21806327 (Fax)

HOME PAGE: http://www.rwp.bwl.uni-muenchen.de/personen/professoren/sellhorn/index.html

TRR 266 Accounting for Transparency ( email )

Warburger Straße 100
Paderborn, 33098

Kamran Ahmed

La Trobe Business School, La Trobe University ( email )

Kingsbury Drive
Melbourne, VIC 3086
0403038387 (Phone)
3105 (Fax)

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