This study investigates the empirical association between manager's information advantages and disclosure quality choice in the context of management earnings forecasts (MEF). The main hypothesis is that managers' information advantages determine four classes of forecast pattern: no disclosure, qualitative disclosure (open-ended interval estimate or general impression), range (close interval estimate) forecasts, and point estimate. In this study, "information quality" refers to the perceived precision of manager's private information signals, which alter the market's beliefs about a firm's future earnings distribution. Several factors are hypothesized to influence the cross-sectional differences in firm characteristics that determine the information quality including earnings predictability, prior precision of market's beliefs, and the underlying uncertainty of the market. Prior work were extended by considering a multi-level forecast precision model, and comparing selected firm characteristics in forecast years with non-forecast years.
Department, Program, or Center
Applied Financial Economics, 2002, 1-6
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