Abstract
The role of board secretaries is a unique institutional feature in China. Individuals in this senior executive role are responsible for coordinating information disclosure. We study the impact of board secretaries on management earnings forecasts and find that their legal expertise, accounting expertise and foreign experience help improve management earnings forecast quality. The quality of forecasts, as indicated by their occurrence, frequency, precision and accuracy, is also positively associated with the role duality (e.g. board director, CFO or other senior executive role) and equity holdings of board secretaries and negatively associated with their political connection. The quality of forecasts is found to increase the compensation of board secretaries. Finally, we show that the equity holding of board secretaries reduces litigation risks and increases corporate philanthropic giving.
Highlights
Managers often release earnings forecasts prior to the actual earnings announcement to show their ability to anticipate economic environment changes and adjust production plans (Trueman 1986)
The median forecasting accuracy is -4.818 for overall forecasts, while the mean accuracy for overall forecasts surprisingly reaches -13.340. These results reveal that there is a high discrepancy in management forecast accuracy and that the forecasts issued by certain firms or in certain years could be extremely unreliable
This study investigates board secretaries’ role in management earnings forecasts of Chinese listed firms
Summary
Managers often release earnings forecasts prior to the actual earnings announcement to show their ability to anticipate economic environment changes and adjust production plans (Trueman 1986). Board secretaries with international experience tend to possess knowledge about more advanced legal institutions and better corporate governance (Duan and Hou 2016; Giannetti et al 2013) and are expected to improve the quality of management earnings forecasts Political connection is another important manager characteristic in China. The results support our predictions: the quality of management earnings forecasts are positively associated with the expertise, role duality and equity holdings of board secretaries, but negatively associated with their political connection. We provide original evidence that the quality of management earnings forecasts is related to professional expertise, political connections, role duality and equity holdings of board secretaries. Chinese listed firms normally issue management forecasts on future net profits, whereas public firms in the USA often issue management forecasts of future earnings per share (EPS)
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