Societal Trust and Management Earnings Forecasts

The Accounting Review, Volume 95, Issue 5, pp. 149-184, 2020

Nanyang Business School Research Paper No. 20-34

62 Pages Posted: 5 Mar 2020 Last revised: 10 Nov 2021

See all articles by Yuyan Guan

Yuyan Guan

Nanyang Business School, Nanyang Technological University

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Albert Tsang

Hong Kong Polytechnic University

Xiangang Xin

City University of Hong Kong

Date Written: February 9, 2019

Abstract

We investigate the relation between societal trust and managers’ decisions to voluntarily issue earnings forecasts. We reason that managers are more (less) likely to issue earnings forecasts in high-trust (low-trust) countries because these voluntary disclosures are viewed by investors as a more(less) credible source of information about the firm’s future profitability. We find evidence consistent with these predictions. Further analyses reveal that societal trust works as a substitute for country-level formal institutions in terms of its implications for management earnings forecast issuance. We also find that the relation between firm-level commitment to credible disclosure and management earnings forecasts is more pronounced in low-trust countries, suggesting that country-level societal trust relates to the effectiveness of firm-level credibility enhancing mechanisms. Finally, we show that management earnings forecasts issued by firms from countries with higher societal trust are more precise and accurate and contain more information about multiple items.

Keywords: Societal trust, management earnings forecasts, credibility, voluntary disclosure

JEL Classification: M41

Suggested Citation

Guan, Yuyan and Lobo, Gerald J. and Tsang, Albert and Xin, Xiangang, Societal Trust and Management Earnings Forecasts (February 9, 2019). The Accounting Review, Volume 95, Issue 5, pp. 149-184, 2020, Nanyang Business School Research Paper No. 20-34, Available at SSRN: https://ssrn.com/abstract=3535172

Yuyan Guan

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Gerald J. Lobo (Contact Author)

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Albert Tsang

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Xiangang Xin

City University of Hong Kong ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
Hong Kong

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