Societal Trust and Management Earnings Forecasts
The Accounting Review, Volume 95, Issue 5, pp. 149-184, 2020
62 Pages Posted: 5 Mar 2020 Last revised: 10 Nov 2021
Date Written: February 9, 2019
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: Suggested Citation