The Corroboration Role of Management Earnings Forecasts in Private Loan Markets

Journal of Accounting, Auditing & Finance. 2024, Volume 39, Issue 3, pp. 903-930.

48 Pages Posted: 6 May 2022 Last revised: 27 Mar 2025

See all articles by Xinghua Gao

Xinghua Gao

Washington State University

Yonghong Jia

Iowa State University

Nicholas Krupa

Clemson University

Jennifer Tucker

University of Florida - Warrington College of Business

Date Written: May 2, 2022

Abstract

Management earnings forecasts (MEFs) may reduce information risk by corroborating the inferences that lenders draw from their private communication with borrowers. Consistent with this idea, we find that among firms with a general policy of issuing MEFs, those providing MEFs in the six months before loan origination with a forecast horizon beyond the origination date enjoy lower loan spreads. The frequency and precision of MEFs are also negatively associated with loan spreads. The associations are stronger when lenders' need for corroboration of their private information is expected to be greater. The associations are not driven by a firm’s general information environment, signaling of managerial ability, opportunistic disclosure, or competition between public and private debt markets. Moreover, the issuance, frequency, and precision of MEFs are associated with loan amounts more spread out among participating lenders, suggesting that MEFs also reduce information asymmetry within a loan syndicate. Our study provides insight into the corroboration role of publicly disseminated MEFs in private loan markets.

Keywords: debt contracting, corroboration, voluntary disclosure, management earnings forecasts

JEL Classification: M4, M2, G3, D82, G21

Suggested Citation

Gao, Xinghua and Jia, Yonghong and Krupa, Nicholas and Tucker, Jennifer, The Corroboration Role of Management Earnings Forecasts in Private Loan Markets (May 2, 2022). Journal of Accounting, Auditing & Finance. 2024, Volume 39, Issue 3, pp. 903-930., Available at SSRN: https://ssrn.com/abstract=4099171

Xinghua Gao

Washington State University ( email )

Department of Accounting
Carson College of Business
Pullman, WA 99163
United States

Yonghong Jia (Contact Author)

Iowa State University ( email )

ames, IA Iowa 50010
United States

Nicholas Krupa

Clemson University ( email )

101 Sikes Ave
Clemson, SC 29634
United States

Jennifer Tucker

University of Florida - Warrington College of Business ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

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