The Effects of a Mixed Approach toward Management Earnings Forecasts: Evidence from China

Journal of Business Finance and Accounting.2018, 45 (3): 319-351

55 Pages Posted: 7 Jan 2013 Last revised: 24 Mar 2019

See all articles by Xiaobei Huang

Xiaobei Huang

University of International Business and Economics (UIBE) - Business School

Xi Li

London School of Economics

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business

Jenny Wu Tucker

University of Florida - Warrington College of Business

Date Written: December 10, 2017

Abstract

Chinese regulators mandate management earnings forecasts when managers’ earnings expectations meet bright-line thresholds and allow voluntary forecasts in other circumstances. We examine the effects of this mixed approach. We find that Chinese mandatory forecasts have significant information content. Moreover, we observe a learning effect: mandatory forecasts appear to stimulate voluntary forecasts in subsequent periods as managers become familiar with the forecasting and disclosing procedures through forced experience. We find one negative consequence of the mixed approach, however: managers appear to manipulate earnings to avoid the forecast threshold of large earnings decreases. Overall, we document the pros and cons of a mixed approach toward management earnings forecasts in a major emerging market.

Keywords: management earnings forecast, forecast mandate, voluntary disclosure, China

Suggested Citation

Huang, Xiaobei and Li, Xi and Tse, Senyo Y. and Tucker, Jenny Wu, The Effects of a Mixed Approach toward Management Earnings Forecasts: Evidence from China (December 10, 2017). Journal of Business Finance and Accounting.2018, 45 (3): 319-351, Available at SSRN: https://ssrn.com/abstract=2196425 or http://dx.doi.org/10.2139/ssrn.2196425

Xiaobei Huang

University of International Business and Economics (UIBE) - Business School ( email )

Beijing
China

Xi Li

London School of Economics ( email )

Department of Accounting
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/accounting/people/xi-li

Senyo Y. Tse

Texas A&M University - Lowry Mays College & Graduate School of Business ( email )

Wehner 401Q, MS 4353
456C
College Station, TX 77843-4218
United States
979-845-3784 (Phone)

Jenny Wu Tucker (Contact Author)

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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