Is there a tradeoff between management earnings forecasts and sustainability reporting?

Abstract

This study investigates the relationship between managers' incentives to disclose management earnings forecasts (MEFs) and the Global Reporting Initiative (GRI) sustainability reports; two types of voluntary disclosures that are produced by managers to provide financial and/or nonfinancial information to stakeholders. As the antecedent determinants of these two disclosures overlap, but the related risks and strategic foci differ, managers' decisions to disclose MEFs and GRI sustainability reports could be independent, cooperative, competing, or even conflicting. Using a sample of public firms from the United States between 2005 and 2018, we demonstrate that managers make a tradeoff decision between disclosing MEFs and disclosing GRI sustainability reports, which is aggravated by proprietary costs and risk exposure. We also find that disclosing both the MEF and GRI sustainability report provides more useful information for investors than no disclosures or producing only one type of disclosure. This indicates that while stakeholders desire more high-quality information, managers compromise on disclosure level in practice. Our study is consistent with the recent trend of appeals by regulators, practitioners, and academia for enhanced standards to improve the quantity and quality of voluntary disclosures for information users.