Are Earnings Forecasts Informed by Proxy Statement Compensation Disclosures?

52 Pages Posted: 1 Aug 2018 Last revised: 14 Aug 2019

Multiple version iconThere are 2 versions of this paper

Date Written: August 13, 2019


We investigate the extent to which market participants use compensation payouts released in the DEF 14A proxy statement (DEF14A) to assess future firm performance by examining sell-side analysts’ earnings forecasts. Consistent with prior work, we confirm that CEO compensation unexplained by current observable economic factors is positively associated with future firm performance. We find that both the likelihood that analysts revise their forecasts following release of the DEF14A and the magnitude and direction of analysts’ forecast revisions are positively associated with unexplained CEO compensation. These associations are stronger after the SEC required additional compensation-related disclosures in late 2006, but lower if the firm has weak corporate governance or more precise other information. Analysts’ reactions are not complete, however. Analysts’ forecast errors measured months after the DEF14A release are associated with past unexplained compensation, especially in the pre-2006 period and for analysts who do not revise at the DEF14A release. Taken together, our results suggest that compensation payouts released in the DEF14A contain useful forward-looking information that is recognized by at least some sophisticated market participants, and that the increased disclosure regulations assisted market participants in incorporating this information.

Keywords: Analysts, Compensation, Disclosure, Forecasts

JEL Classification: M4, M41, G17, G24, J33

Suggested Citation

Larocque, Stephannie A. and Martin, Melissa and Walther, Beverly R., Are Earnings Forecasts Informed by Proxy Statement Compensation Disclosures? (August 13, 2019). Contemporary Accounting Research, Forthcoming, Available at SSRN: or

Stephannie A. Larocque (Contact Author)

University of Notre Dame - Mendoza College of Business ( email )

Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Melissa Martin

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Beverly R. Walther

Northwestern University - Department of Accounting Information & Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1595 (Phone)
847-467-1202 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics