Management Earnings Forecasts and Accounting Conservatism

In a recent paper, Hui, Matsunaga, and Morse have argued that managers may prefer using accounting conservatism instead of issuing management earnings forecasts (MFs) that may reduce information asymmetry and may lower firms’ potential legal liability. We argue in this article that accounting conser...

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Bibliographic Details
Published inJournal of accounting, auditing & finance Vol. 36; no. 3; pp. 451 - 474
Main Authors Jaggi, Bikki, Xin, Hua Christine, Ronen, Joshua
Format Journal Article
LanguageEnglish
Published Los Angeles, CA SAGE Publications 01.07.2021
Warren Gorham Lamont
Subjects
Conservatism
Cost of capital
Earnings forecasting
accounting conservatism
management earnings forecast
cost of capital MFs
disclose or abstain and opportunistic MFs
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Summary:In a recent paper, Hui, Matsunaga, and Morse have argued that managers may prefer using accounting conservatism instead of issuing management earnings forecasts (MFs) that may reduce information asymmetry and may lower firms’ potential legal liability. We argue in this article that accounting conservatism serves as a substitute only for informative forecasts, which are classified as cost of capital (COC) MFs, and it does not serve as a substitute for opportunistic (OPP) MFs and disclose or abstain (DOA) MFs that are required under 1933 Securities Exchange Act because both these types of MFs are used to achieve different objectives. Our findings confirm our claim that conservatism serves as a substitute for informative MFs only.
ISSN:0148-558X
2160-4061
DOI:10.1177/0148558X19865432