Voluntary Disclosure, Legal Institutions, and Firm Valuation: Evidence from U.S. Cross-Listed Foreign Firms

2014 ◽  
Vol 13 (2) ◽  
pp. 57-85 ◽  
Author(s):  
Yaqi Shi ◽  
Jeong-Bon Kim ◽  
Michel L. Magnan
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Firm Valuation ◽  
Economic Consequences ◽  
Sensitivity Analyses ◽  
Foreign Firms ◽  
Management Earnings Forecasts ◽  
Listed Firms ◽  
Forecast Precision ◽  
Legal Regimes

ABSTRACT Building on the bonding hypothesis, this paper examines the economic consequences of voluntary management earnings forecasts (MFs) made by foreign firms cross-listed in the U.S. market. Our work reveals the following. First, cross-listed firms that voluntarily issue MFs exhibit higher firm valuation (Tobin's Q) than those that do not issue MFs, with forecast precision and frequency further enhancing valuation premiums. Additionally, the valuation premium of MFs is more pronounced for cross-listed firms than for a matched sample of U.S. domestic firms. Second, cross-listed firms from countries with weaker legal regimes are valued more for their voluntary forecasts relative to those from stronger legal regimes. Third, further sensitivity analyses suggest that valuation implications from MFs are more consistent with reputational bonding than with a signaling perspective. Finally, our mediation analysis suggests that voluntary disclosures of MFs are an important channel through which the information environment positively influences firm valuation. Overall, our study contributes to both the voluntary disclosure and cross-listing literatures. JEL Classifications: G14; G15; G32; G34; M41.

The spillover effects of a bright-line regulation: evidence from China

2019 ◽  
Vol 28 (1) ◽  
pp. 22-44
Author(s):  
Yunling Song ◽  
Shihong Li ◽  
Ling Zhou
Keyword(s):  
Financial Reporting ◽  
Earnings Forecasts ◽  
Spillover Effects ◽  
Economic Consequences ◽  
Content Type ◽  
Listed Firms ◽  
Bright Line ◽  
Reporting Behaviors ◽  
Line Test ◽  
Earnings Change

Purpose The purpose of this paper is to investigate the spillover effects of a bright-line disclosure regulation that required Chinese listed firms to provide earnings forecasts if they anticipated specified, large earnings changes. Design/methodology/approach The paper examines the discontinuity of the earnings change distribution of firms listed on the Shenzhen Stock Market between 2010 and 2014. The paper finds that firms no longer subject to the bright-line test still exhibited discontinuity in earnings change distribution. The discontinuity lasted for at least three years with magnitude comparable to that of the firms still subject to the bright-line test. In addition, newly listed firms that had never experienced the bright-line test showed similar tendency to avoid the same threshold. There is some evidence that these firms’ avoidance of the −50 per cent changes was partly because of market pressure. Research limitations/implications Research on bright-line tests has to date focused on their immediate and direct effects on firms currently subject to such tests. This study finds that a bright-line disclosure regulation’s influence is not limited to the firms directly governed by the regulation. It could lead to widespread and long lasting distortions in financial reporting behaviors of firms not currently subject to such tests. Practical implications The paper has implications for regulators who study the economic consequences of bright-line regulations in general and analysts of the Chinese capital market in particular. Originality/value This is the first empirical report that bright-line disclosure regulations affected the financial reporting behavior of firms that were not directly subject to the bright-line tests.

Litigation Risk and Voluntary Disclosure: Evidence from Legal Changes

2019 ◽  
Vol 94 (5) ◽  
pp. 247-272 ◽  
Author(s):  
Joel F. Houston ◽  
Chen Lin ◽  
Sibo Liu ◽  
Lai Wei
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Fixed Effect ◽  
Litigation Risk ◽  
Management Earnings Forecasts ◽  
Causal Inferences ◽  
Difference In Differences ◽  
Negative News ◽  
Effect Difference ◽  
Jel Classifications

ABSTRACT This paper documents that changes in litigation risk affect corporate voluntary disclosure practices. We make causal inferences by exploiting three legal events that generate exogenous variations in firms' litigation risk. Using a matching-based fixed-effect difference-in-differences design, we find that the treated firms tend to make fewer (more) management earnings forecasts relative to the control firms when they expect litigation risk to be lower (higher) following the legal event. The results are concentrated on the earnings forecasts conveying negative news and are robust to alternative specifications, samples, and outcome variables. JEL Classifications: D80; G14; K22; K41; M41.

Restatement Disclosures and Management Earnings Forecasts

2013 ◽  
Vol 27 (2) ◽  
pp. 347-369 ◽  
Author(s):  
Michael Ettredge ◽  
Ying Huang ◽  
Weining Zhang
Keyword(s):  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Management Earnings Forecasts ◽  
Quarterly Earnings ◽  
Financial Restatements ◽  
The Impact ◽  
Information Providers

SYNOPSIS We examine the impact of financial restatements on managers' subsequent earnings forecasts. We argue that restatements create conflicting incentives. One incentive is to repair manager reputations as information providers by providing more and better guidance via earnings forecasts. The opposing incentive is to avoid risk by reducing the information in forecasts. We find that compared to control firms, restatement companies exhibit a decreased propensity to issue quarterly earnings forecasts following restatements. Those that do make forecasts issue fewer forecasts in post-restatement periods. We also find that post-restatement forecasts are less precise, and are less optimistically biased. Overall, our results suggest that, rather than increasing voluntary disclosure in the form of forecasts, managers of restatement companies exhibit risk-averting forecasting behavior following restatements.

scholarly journals The Impact Of Social Capital On The Propensity And Properties Of Management Earnings Forecasts

2014 ◽  
Vol 30 (6) ◽  
pp. 1803
Author(s):  
Xinyi Lu
Keyword(s):  
United States ◽  
Social Capital ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
The United States ◽  
Earnings Forecast ◽  
Management Earnings Forecasts ◽  
Financial Factor ◽  
The Impact ◽  
The Relationship

This paper examines the relationship between the regional variation in social capital in the United States and the propensity and properties of the management earnings forecasts. Social capital refers to connections among individualssocial networks and the norms of reciprocity and trustworthiness that arise from them (Putnam 2000). Using a comprehensive sample of companies in the United States, we find that firms located in region with higher social capital are more likely to issue a management earnings forecast and are inclined to forecast more frequently. In addition, earnings forecasts made by those firms tend to be more specific. Our findings suggest that mangers of firms in the high social capital regions are more likely to be concerned about their reputation of providing transparent information regarding their businesses because of the close connections among individuals and the greater propensities to honor obligations. This study contributes to the accounting literature by identifying a non-financial factor (i.e., social capital) that affects managements voluntary disclosure practices.

Technological Peer Pressure and Product Disclosure

2018 ◽  
Vol 93 (6) ◽  
pp. 95-126 ◽  
Author(s):  
Sean Shun Cao ◽  
Guang Ma ◽  
Jennifer Wu Tucker ◽  
Chi Wan
Keyword(s):  
Product Development ◽  
Voluntary Disclosure ◽  
Earnings Forecasts ◽  
Peer Pressure ◽  
Data Availability ◽  
Test Results ◽  
Management Earnings Forecasts ◽  
Press Releases ◽  
Negative Relation ◽  
Proprietary Costs

ABSTRACT We introduce a firm-specific measure of the technological aspect of competition—technological peer pressure—and examine firm-initiated product development-related press releases. We argue that empirical examinations of the theorized negative relation between competition and disclosure require the type of voluntary disclosure to be relevant to the dimension of competition under examination to ensure that firms incur significant proprietary costs of disclosure. In other words, many types of disclosure do not provide actionable information to competitors and, thus, should not be affected by that dimension of competition. We expect a negative relation between technological peer pressure and product disclosure because the latter reveals firms' strategies, allocations, and progress of technological investments in product development to competitors. In contrast, we do not expect a negative relation between technological peer pressure and management earnings forecasts—the most common type of voluntary disclosure used in accounting research. Our test results are consistent with these expectations. Data Availability: All data are available from public sources. Our TPP Measure is available for download, please see the link in Appendix G.

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