Characteristics and Information Value of Corporate Disclosures of Forward-Looking Information in Global Equity Markets
This study documents the characteristics and information value of corporate disclosures of forward-looking information in different equity markets. It focuses on the extent to which national differences in legal and regulatory environments, and systems of corporate governance and finance influence the frequency, specificity, and conservativeness of managers' timely forward-looking disclosures. To provide evidence on the information value of forward-looking disclosures to investors, the stock price responses to forward-looking disclosures in the five countries studied are compared. The primary question motivating this analysis is whether the stringent legal and regulatory climate in the US deters firms from releasing forward-looking disclosures as compared with those in countries such as France, Germany, and Japan, where the legal and regulatory climates are less stringent. I include analysis of UK disclosures for further comparative evidence since the UK, like the US, imposes stringent legal standards. Analysis focuses on forward-looking disclosures made during 1993 by 400 firms, 80 each selected from France, Germany, Japan, the UK, and the US. The five national samples are matched on firm size (1993 equity market value) and are all drawn from the manufacturing industry group. The evidence in this study is generally consistent with the view that the legal and regulatory climate in the US does influence US firms' forward-looking disclosure policies. Specifically, relatively fewer US (and UK) firms disclose forecasts, and forecast frequency is lower then in France, Germany, and Japan, even though US and UK firms release press releases more frequently overall. Also, in the US and the UK, only 38% and 20%, respectively, of the announcements with forward-looking information contain specific forecasts, compared to 64% of the announcements in France, 64% in Germany, and 80% in Japan. Two analyses also support the view that US firms' forward-looking disclosure policies are relatively conservative. for example, forecast horizons are shorter in the US (and the UK), consistent with the view that US managers may delay releasing forecasts to decrease the probability of making an incorrect forecast, which might lead to increased legal risk. All types of US forward-looking disclosure appear to convey relevant new information to investors, suggesting that the stringent US legal and regulatory environment does not necessarily impair US investors' access to the most highly relevant forward-looking information. The market responses to earnings and sales forecasts and "soft" prospective disclosures for the US subsample are statistically significant, especially for forecasts, and the market responses to forecasts are greater than the response to earnings and sales results. However, forward-looking disclosures also appear to be informative in France, Germany, and the UK (but not in Japan). For example, for the French subsample, both mean and median market responses to earnings forecasts and "soft" earnings prospective disclosures are statistically significant at conventional levels. Thus, even though the legal and regulatory climates in France and Germany are less stringent than in the US, firms in these countries also disclose credible and timely forward-looking information.