The Effect of Conditional Management Earnings Forecast Mandates on Voluntary Disclosure and Analyst Forecast Properties

Abacus Forthcoming

49 Pages Posted: 20 Sep 2021

See all articles by Nathan Zhu

Nathan Zhu

Zhejiang University - School of Management

Kun Tracy Wang

Australian National University - Research School of Accounting

Mark David Wilson

Australian National University

Date Written: September 15, 2021

Abstract

This study examines the effect of a conditional management earnings forecast mandate on voluntary disclosure and the properties of analyst forecasts in China, where firms are required to provide earnings forecasts when they expect to either make a loss, turn from loss into profit or experience a large change in earnings. We find that firms’ propensities to issue voluntary management earnings forecasts is higher when they anticipate the disclosure of mandatory management earnings forecasts in the future. This relation is stronger for government-controlled firms. We also find a significant improvement in the quality of analyst earnings forecasts (measured by forecast accuracy and dispersion) for firms that provide voluntary management earnings forecasts, while the disclosure of mandatory management earnings forecasts is negatively associated with analyst earnings forecast quality. We document that this differential effect on analyst earnings forecast quality is attributable to the higher quality of voluntary management earnings forecasts. Further analyses suggest that the positive effect of voluntary management earnings forecasts on analyst earnings forecast quality is larger for firms with a relatively weak existing information environment. Our findings suggest that the conditional mandatory disclosure of management earnings forecasts can incentivize managers to provide voluntary forecasts, and that these voluntary forecasts play a greater role than mandatory management forecasts in improving firms’ external information environment in the Chinese capital market.

Keywords: Management earnings forecast, analyst forecast, disclosure, regulation, China

Suggested Citation

Zhu, Nathan Zhenghang and Wang, Kun Tracy and Wilson, Mark D., The Effect of Conditional Management Earnings Forecast Mandates on Voluntary Disclosure and Analyst Forecast Properties (September 15, 2021). Abacus Forthcoming, Available at SSRN: https://ssrn.com/abstract=3924865

Nathan Zhenghang Zhu (Contact Author)

Zhejiang University - School of Management ( email )

Hangzhou, Zhejiang Province 310058
China

Kun Tracy Wang

Australian National University - Research School of Accounting ( email )

Canberra, Australian Capital Territory 2601
Australia

Mark D. Wilson

Australian National University ( email )

Canberra, Australian Capital Territory 2601
Australia

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