Management Forecast Disaggregation and the Legal Environment: International Evidence

Abstract

This study examines the extent to which managers from countries around the world provide disaggregated forecasts (i.e., forecasts containing projections of multiple key performance measures) and also investigates which performance measure managers tend to forecast the most in different countries. In addition, this study also examines whether and to what extent the perceived informativeness of disaggregated forecasts and the different forecast items vary with the legal regime related to investor protection of a country. Using a comprehensive dataset hand-collected from the original text of management forecasts from 30 countries, we find that managers are generally less (more) inclined to issue disaggregated forecasts and forecasts containing projections on future sales and income from continuing operations in countries with a stronger (weaker) legal environment, although such forecasts are (are not) perceived to be more informative in these countries. Overall, our results suggest that while providing more disaggregated forecasts and the choice of forecast items represent important mechanisms through which managers can enhance the perceived informativeness of their forecasts, the resulting outcome and the incentives for issuing such forecasts are affected by both the costs and benefits associated with voluntary disclosure in different countries.