Long-Term Information in the Decision to Provide a Short-Term Forecast

39 Pages Posted: 20 Oct 2020

See all articles by Mirko Stanislav Heinle

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department

Chongho Kim

New York University

Daniel J. Taylor

The Wharton School, University of Pennsylvania

Frank Zhou

University of Pennsylvania - The Wharton School

Date Written: September 27, 2020

Abstract

Several recent empirical papers assert that the decision to disclose an earnings forecast shortly before the actual earnings announcement reveals only short-term information and is therefore unlikely to entail proprietary costs. Using a simple dynamic model of voluntary disclosure, we show that the decision to disclose a short-term earnings forecast reveals managers’ private information about long-term future performance. We test the predictions of the model empirically and find that the decision to disclose a short-term earnings forecast predicts earnings three years beyond the forecasted period, and that the predictive ability is incremental to short-term earnings itself. Consistent with the predictions of our model, we find that the predictive ability of the short-term forecast decision for long-term performance is higher when short-term performance is poor; is lower when managers have short horizons; and is lower when proprietary costs of revealing long-term performance is high. Our analysis suggests that – despite its short horizon – the decision to provide a short-term earnings forecast contains significant information about long-term performance and thus can entail significant proprietary costs.

Keywords: disclosure, myopia, earnings forecast

JEL Classification: D82, D83, G14, M41, M45

Suggested Citation

Heinle, Mirko Stanislav and Kim, Chongho and Taylor, Daniel and Zhou, Frank, Long-Term Information in the Decision to Provide a Short-Term Forecast (September 27, 2020). NYU Stern School of Business Forthcoming, Available at SSRN: https://ssrn.com/abstract=3700554 or http://dx.doi.org/10.2139/ssrn.3700554

Mirko Stanislav Heinle

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Chongho Kim

New York University ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States
5129987313 (Phone)

Daniel Taylor (Contact Author)

The Wharton School, University of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Frank Zhou

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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