How Do Firms Manage Their Earnings Forecast Strategy? A New Zealand Study

Working Paper No. 62

22 Pages Posted: 26 Apr 2012

See all articles by Keitha L. Dunstan

Keitha L. Dunstan

Bond University - School of Business

Gerry Gallery

Queensland University of Technology

Thu Phuong Truong

Victoria University of Wellington - Te Herenga Waka

Date Written: August 2008

Abstract

In contrast to the trend of research investigating why firms decide to release earnings forecasts to pre-empt any expected change in earnings, our study investigates how firms manage their earnings forecast strategy once they have decided to release earnings forecasts. Using a sample of 350 NZX-listed firm years with balance date ending from 31 January 1999 to 31 December 2005 for 94 companies across the statutory-backed continuous disclosure regime, we document that firms are more likely to adopt a multiple earnings forecast (a portfolio) approach in the statutory sanctions period, particularly for the group of firms expecting favourable earnings change. We also document that these good news firms have a higher propensity to gradually update the market with good news earnings forecasts while those with bad news are more likely to immediately correct current market earnings expectations. These findings indicate that firms expecting better earnings performance are more conservative in their earnings forecasting compared to those expecting worse earnings performance. Although this asymmetrical treatment of good and bad news might not meet the corporate regulators’ objective of a continuously updated market with an unbiased approach to the treatment of information, the overall increase in disclosure frequency in the statutory sanctions period does indicate an improvement in the information flow to the capital market.

Keywords: management earnings forecasts, continuous disclosure, earnings forecast strategy

JEL Classification: G14, K22

Suggested Citation

Dunstan, Keitha L. and Gallery, Gerry Thomas and Truong, Thu Phuong, How Do Firms Manage Their Earnings Forecast Strategy? A New Zealand Study (August 2008). Working Paper No. 62, Available at SSRN: https://ssrn.com/abstract=2046350 or http://dx.doi.org/10.2139/ssrn.2046350

Keitha L. Dunstan

Bond University - School of Business ( email )

Gold Coast, QLD 4229
Australia

Gerry Thomas Gallery

Queensland University of Technology ( email )

School of Accountancy GPO 2434
Brisbane QLD 4001
Australia
61738648347 (Phone)

Thu Phuong Truong (Contact Author)

Victoria University of Wellington - Te Herenga Waka ( email )

P.O. Box 600
Wellington, 6140
New Zealand
64 4 463 5233 (ext 8961) (Phone)
64 4 463 5076 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
51
Abstract Views
620
Rank
693,765
PlumX Metrics