Publication Type

Journal Article

Version

submittedVersion

Publication Date

4-2021

Abstract

Prior literature suggests that voluntary disclosures of forward-looking information tend to lead to capital market benefits, but these disclosures may also result in negative capital market consequences if subsequent performance falls below expectations. We, therefore, hypothesize that convex equity incentives, which reward managers for stock price gains while limiting their exposure to losses, should promote greater voluntary forward-looking disclosure. Consistent with our hypothesis, we find a significantly positive association between equity incentive convexity and forecast issuance and frequency. We also find that the positive association is more pronounced for firms with higher sales volatility and managers with shorter tenure, in which cases managers are more concerned with missing their own forecasts. Our study suggests that the risks arising from providing voluntary disclosures are important considerations in managers’ disclosure decisions.

Keywords

voluntary disclosure, earnings guidance, managerial incentives, disclosure risks

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Reporting and Disclosure

Publication

Journal of Financial Reporting

Volume

6

Issue

2

First Page

19

Last Page

44

Identifier

10.2308/JFR-2020-009

Publisher

American Accounting Association

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.2308/JFR-2020-009

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