Voluntary Causal Disclosures: Tendencies and Capital Market Reaction

Voluntary Causal Disclosures: Tendencies and Capital Market Reaction In this study, we provide empirical evidence on whether voluntarily disclosed causal attributions made in management earnings forecasts are credible by investigating the conditions under which such attributions are made and the extent to which security price responses are associated with attribution existence. We find that causal attributions are more likely to be made when forecast news is bad (relative to good), and that the type of attribution made is more likely to be external (internal) for bad (good) forecast news. Incorporating the existence and type of attribution into models that explain announcement period three-day cumulative abnormal returns yields significant effects for attribution incidence and type after controlling for unexpected earnings and forecast type (e.g., point, range, etc.). Consistent with the idea that attributions enhance the credibility or precision of management forecasts, attribution disclosure enhances price reactions per dollar of unexpected earnings conveyed in a management forecast. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Voluntary Causal Disclosures: Tendencies and Capital Market Reaction

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1012002608615
Publisher site
See Article on Publisher Site

Abstract

In this study, we provide empirical evidence on whether voluntarily disclosed causal attributions made in management earnings forecasts are credible by investigating the conditions under which such attributions are made and the extent to which security price responses are associated with attribution existence. We find that causal attributions are more likely to be made when forecast news is bad (relative to good), and that the type of attribution made is more likely to be external (internal) for bad (good) forecast news. Incorporating the existence and type of attribution into models that explain announcement period three-day cumulative abnormal returns yields significant effects for attribution incidence and type after controlling for unexpected earnings and forecast type (e.g., point, range, etc.). Consistent with the idea that attributions enhance the credibility or precision of management forecasts, attribution disclosure enhances price reactions per dollar of unexpected earnings conveyed in a management forecast.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Oct 8, 2004

References

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