Abstract

We examine the relation between voluntary clawback adoptions in the US and firms’ propensity to issue earnings forecasts and the frequency of such forecasts. We find that clawback adoptions are followed by an increase in the likelihood and frequency of managers issuing earnings forecasts. Further, we find this relation to hold only for firms with an actual increase in financial reporting quality following clawback adoption. We also observe a greater increase in the likelihood and frequency of management forecasts in the post-adoption period among adopters having higher ex-ante information asymmetry. Our results suggest that the improved financial reporting quality following clawback adoptions increases the verifiability (and credibility) of earnings forecasts making them more likely to be used. Our findings are of potential interest to regulators and investors in the US (and elsewhere) interested in the outcomes associated with clawback adoptions for firms’ information environment. In particular, now that clawback adoptions are mandatory (SEC, 2022) our findings suggest that the benefits associated with clawback adoptions may be expected only for a subset of (rather than all) companies subject to the mandate.

Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call

Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.