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The perceived credibility of forward-looking performance disclosures

Vasiliki Athanasakou and Khaled Hussainey

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We investigate the credibility of forward-looking performance disclosures (FLPDs) in the narrative sections of annual reports, as perceived by investors. Our proxy for these disclosures is an index of statements about future performance. We find that companies issue more FLPDs when raising debt or conveying bad news in the financial statements. In the presence of these managerial incentives, investor reliance on FLPDs increases with the quality of earnings reported in the audited financial statements. Our results suggest that firms derive a benefit in terms of higher credibility for their narrative disclosures from having a reputation for high quality earnings.

Keywords: forward-looking statements; voluntary disclosures; managerial incentives; earnings quality (search for similar items in EconPapers)
JEL-codes: M40 F3 G3 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-acc
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Published in Accounting and Business Research, 2014, 44(3), pp. 227-259. ISSN: 0001-4788

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