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Do voluntary positive earnings forecasts of Chinese listed companies benefit publicly or privately?

Do voluntary positive earnings forecasts of Chinese listed companies benefit publicly or privately? PurposeAccording to the Chinese Stock Exchange rules, the listed companies’ management earnings forecasts (MEFs) are divided into mandatory and voluntary earnings forecasts. Different information disclosure mechanisms may bring different economic consequences. Compared with the former, when, how frequently and what kind of voluntary earnings forecasts are disclosed almost entirely depends on the discretion of managers and the major shareholders[1]. The purpose of this paper is to examine whether listed companies’ voluntary earnings forecasts have self-benefited motives before the major shareholders’ selling of original non-tradable shares and how the capital market reacts in China.Design/methodology/approachThis paper uses multiple regression analyses to examine the influence of the major shareholders’ non-tradable shares selling motives on MEFs’ type and frequency of A-share listed companies and makes robust tests using the difference in difference model (DID).FindingsIn the paper, it is found that before the major shareholders’ selling of original non-tradable shares, managers of listed companies are prone to release positive voluntary MEFs; during the shares reduction year of the major shareholders, the disclosure frequency of MEFs is much higher; these forecasts before the major stockholders’ selling have significant higher excess market returns. The evidence suggests that voluntary positive MEFs are for the major shareholders’ self-interested motive rather than for the open, fair and just disclosure purpose that damages the allocation efficiency of the capital market.Originality/valueThis paper enriches the understanding of voluntary MEFs’ incentives literature and provides scientific evidence to improve the supervision of information disclosure and insider trading in Chinese security market. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Nankai Business Review International Emerald Publishing

Do voluntary positive earnings forecasts of Chinese listed companies benefit publicly or privately?

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2040-8749
DOI
10.1108/NBRI-07-2017-0038
Publisher site
See Article on Publisher Site

Abstract

PurposeAccording to the Chinese Stock Exchange rules, the listed companies’ management earnings forecasts (MEFs) are divided into mandatory and voluntary earnings forecasts. Different information disclosure mechanisms may bring different economic consequences. Compared with the former, when, how frequently and what kind of voluntary earnings forecasts are disclosed almost entirely depends on the discretion of managers and the major shareholders[1]. The purpose of this paper is to examine whether listed companies’ voluntary earnings forecasts have self-benefited motives before the major shareholders’ selling of original non-tradable shares and how the capital market reacts in China.Design/methodology/approachThis paper uses multiple regression analyses to examine the influence of the major shareholders’ non-tradable shares selling motives on MEFs’ type and frequency of A-share listed companies and makes robust tests using the difference in difference model (DID).FindingsIn the paper, it is found that before the major shareholders’ selling of original non-tradable shares, managers of listed companies are prone to release positive voluntary MEFs; during the shares reduction year of the major shareholders, the disclosure frequency of MEFs is much higher; these forecasts before the major stockholders’ selling have significant higher excess market returns. The evidence suggests that voluntary positive MEFs are for the major shareholders’ self-interested motive rather than for the open, fair and just disclosure purpose that damages the allocation efficiency of the capital market.Originality/valueThis paper enriches the understanding of voluntary MEFs’ incentives literature and provides scientific evidence to improve the supervision of information disclosure and insider trading in Chinese security market.

Journal

Nankai Business Review InternationalEmerald Publishing

Published: Mar 5, 2018

References