How investors value cash and cash flows when managers commit to providing earnings forecasts

Michael J Imhof and Scott E. Seavey

Advances in accounting, 2018, vol. 41, issue C, 74-87

Abstract: Theory considers voluntary disclosure to be an important mechanism for reducing information asymmetry in the corporate setting (Bertomeu, Beyer, & Dye, 2011). Prior research on corporate cash policy suggests that investors value cash holdings more when information asymmetry is low (e.g., Drobetz, Gruninger, & Hirschvogl, 2010). Given both streams of literature, we examine whether investors value cash and cash flows higher for firms that commit to providing management earnings forecasts, an important form of voluntary disclosure. In univariate analyses, we show that committed forecasting is negatively associated with widely accepted measures of information asymmetry. In multivariate tests, we document that committed forecasting is associated with a higher market value of cash, surplus cash and operating cash flows. Our multivariate results are robust to adjustments for endogeneity in managers' forecast decision, and to the inclusion of controls for alternative uses of cash, firm information quality, information demand and governance.

Keywords: Management earnings forecasts; Voluntary disclosure; Value of cash; Agency costs (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0882611017300032
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:41:y:2018:i:c:p:74-87

DOI: 10.1016/j.adiac.2018.03.004

Access Statistics for this article

Advances in accounting is currently edited by Dennis Caplan

More articles in Advances in accounting from Elsevier
Bibliographic data for series maintained by Catherine Liu ().