A longitudinal study of corporate earnings guidance in Australia’s continuous disclosure environment

Guo, Chan (2011) A longitudinal study of corporate earnings guidance in Australia’s continuous disclosure environment. PhD thesis, Queensland University of Technology.


Since the introduction of a statutory‐backed continuous disclosure regime (CDR) in 1994, regulatory reforms have significantly increased litigation risk in Australia for failure to disclose material information or for false and misleading disclosure. However, there is almost no empirical research on the impact of the reforms on corporate disclosure behaviour. Motivated by the absence of research and using management earnings forecasts (MEFs) as a disclosure proxy, this study examines (1) why managers issue earnings forecasts, (2) what firm‐specific factors influence MEF characteristics, and (3) how MEF behaviour changes as litigation risk increases. Based on theories in information economics, a theoretical framework for MEF behaviour is formulated which includes antecedent influencing factors related to firms‟ internal and external environments. Applying this framework, hypotheses are developed and tested using multivariate models and a large sample of hand-collected MEFs (7,213) issued by top 500 ASX-listed companies over the 1994 to 2008 period. The results reveal strong support for the hypotheses. First, MEFs are issued to reduce information asymmetry, litigation risk and signal superior performance. Second, firms with better financial performance, smaller earnings changes, and lower operating uncertainty provide better quality MEFs. Third, forecast frequency and quality (accuracy, timeliness and precision) noticeably improve as litigation risk increases. However, managers appear to be still reluctant to disclose earnings forecasts when there are large earnings changes, and an asymmetric treatment of news type continues to prevail (a good news bias). Thus, the findings generally provide support for the effectiveness of the CDR regulatory reforms in improving disclosure behaviour and will be valuable to market participants and corporate regulators in understanding the implications of management forecasting decisions and areas for further improvement.

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ID Code: 46693
Item Type: QUT Thesis (PhD)
Supervisor: Gallery, Gerry & Nelson, Jodie
Keywords: management earnings forecast, information disclosure, Australia, continuous disclosure, litigation risk
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Institution: Queensland University of Technology
Deposited On: 27 Oct 2011 23:39
Last Modified: 27 Oct 2011 23:39

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