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Financing policy, executive stock options and cash flow forecasts

Author

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  • Yi-Mien Lin
  • Woody M. Liao
  • Yen-Yu Liu

Abstract

This article investigates the relationship between management voluntary disclosures of cash flow forecasts and external financing policy, earnings management, earnings forecasts and executive stock option compensation. We find that management is more likely to issue cash flow forecasts when a firm has external financing needs or when a firm has more executive stock option compensation. However, management is less likely to disclose cash flow forecasts when a firm has more earnings management. Consistent with the prior research, we document that a firm with high dividend payout, large asset value and high profitability tends to disclose cash flow information to convey good news. Further, if analysts have released earning forecasts, management is likely to issue cash flow forecasts to complement those analyst earnings forecasts. If analysts release cash flow forecasts, management is less likely to disclose cash flow forecasts to avoid issuing repeat forecasts. Our results, therefore, suggest that different incentives drive management disclosure decisions regarding cash flow forecasts in actual practice.

Suggested Citation

  • Yi-Mien Lin & Woody M. Liao & Yen-Yu Liu, 2013. "Financing policy, executive stock options and cash flow forecasts," Applied Economics Letters, Taylor & Francis Journals, vol. 20(3), pages 213-226, February.
    • Handle: RePEc:taf:apeclt:v:20:y:2013:i:3:p:213-226
    DOI: 10.1080/13504851.2012.689108
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    Cited by:

    1. Teng-Shih Wang & Yi-Mien Lin & Chin-Fang Chao, 2013. "Board independence, executive compensation and restatement," Applied Financial Economics, Taylor & Francis Journals, vol. 23(11), pages 963-975, June.

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