Management Forecasts and Competition for Limited Investor Resources

54 Pages Posted: 19 Apr 2019

See all articles by Stella Y. Park

Stella Y. Park

University of Pennsylvania - The Wharton School

Catherine M. Schrand

University of Pennsylvania - Accounting Department

Frank Zhou

University of Pennsylvania - The Wharton School

Date Written: March 12, 2019

Abstract

This paper documents a dual role for disclosure. In addition to the traditional role of alleviating information asymmetry, firms are motivated to disclose to attract limited investor resources and order flow away from other firms (Fishman and Hagerty, 1989). Higher competition for investors increases the incentive to disclose, but the resulting excessive disclosure implies diminishing marginal returns to disclosure. Consistent with this investor-seeking role for disclosure, we find that when firms compete more for investors, they issue more guidance, especially capital expenditure forecasts. The guidance increases liquidity and price efficiency, but the effects decrease as guidance serves more of an investor-seeking role.

Keywords: comovement, disclosure, guidance, management forecasts, information acquisition

JEL Classification: G1, M4

Suggested Citation

Park, Stella Y. and Schrand, Catherine M. and Zhou, Frank, Management Forecasts and Competition for Limited Investor Resources (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3357603 or http://dx.doi.org/10.2139/ssrn.3357603

Stella Y. Park

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Catherine M. Schrand

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-6798 (Phone)
215-573-2054 (Fax)

Frank Zhou (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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