Abstract
This study investigates whether voluntary disclosure of management earnings forecasts influences investors’ long-term assessment of firm risk and firm value. We control for possible endogeneity between various firm-specific characteristics and the voluntary issuing of different types of management earnings forecasts by utilizing a two-stage Heckman treatment analysis. We find a significant negative relationship between the issuance of management earnings forecasts and a variety of risk measures including idiosyncratic risk, stock return volatility, beta, and bid-ask spreads suggesting that information risk is an important determinant of both diversifiable risk and nondiversifiable systematic risk. We also demonstrate that management earnings forecasts are positively associated with firm value as captured by Tobin’s Q when firms have established their forecasting reputation by consistently releasing more frequent, precise and credible forecasts.
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