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Reputation management and the disclosure of earnings forecasts

Author

Listed:
  • Anne Beyer

    (Stanford University)

  • Ronald A. Dye

    (Northwestern University)

Abstract

In this paper, managers differ from each other in terms of the probability that they are “forthcoming” (and disclose all the earnings forecasts they receive) or “strategic” (and disclose the earnings forecasts they receive only when it is in their self-interest to do so). Strategic managers choose whether to disclose their forecasts based on both the disclosure’s effects on their firms’ stock price and on their reputation among investors for being forthcoming. Our findings include: strategic managers can build a reputation for being forthcoming by disclosing unfavorable forecasts; managers’ incentive to build a reputation for being forthcoming may be so strong that they disclose even the most negative forecasts; as managers become more concerned about their reputation: (a) the current price of the firm in the event the manager makes no forecast increases; (b) managers who have a high probability of behaving strategically (as forthcoming) in the future issue forecasts more (less) often in the present.

Suggested Citation

  • Anne Beyer & Ronald A. Dye, 2012. "Reputation management and the disclosure of earnings forecasts," Review of Accounting Studies, Springer, vol. 17(4), pages 877-912, December.
    • Handle: RePEc:spr:reaccs:v:17:y:2012:i:4:d:10.1007_s11142-011-9180-5
    DOI: 10.1007/s11142-011-9180-5
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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