Accounting comparability and the accuracy of management earnings forecasts in Japan

Wenjun Kuang ()
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Wenjun Kuang: Graduate School of Economics, Osaka University

No 23-07, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: This study examines the influence of accounting comparability on management earnings forecast accuracy. Using the Japanese setting, where management earnings forecasts are effectively mandated and accounting comparability could be more exogenous than in other countries, I find a positive relationship between accounting comparability and management earnings forecast accuracy. This indicates that comparable financial information could improve the accuracy of management earnings forecasts. I also provide evidence that the positive relationship between accounting comparability and management earnings forecast accuracy is more pronounced when subject firms have higher institutional ownership and peer firms have higher accounting (i.e., accrual) quality. My results suggest that accounting comparability increases the disclosure quality of management earnings forecasts by enhancing investors’ monitoring of managerial behaviours and facilitating managerial learning from peer firms. Additional analyses show that the positive effect of accounting comparability on management forecast accuracy becomes strengthened after the 2008 quarterly reporting regulation in Japan. However, there is no evidence showing that International Financial Reporting Standards (IFRS) adoption increases the positive effect of comparability. Overall, this study enriches the literature on determinants of the accuracy of management earnings forecasts and highlights the positive consequences of accounting comparability in the Japanese capital market.

Keywords: Accounting comparability; Management earnings forecast; Monitoring effect; Learning effect. (search for similar items in EconPapers)
JEL-codes: M41 M48 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2023-05
New Economics Papers: this item is included in nep-acc
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