Forward-looking Statements Research Articles

Questionnaire for Biotechs: Vical Incorporated

This feature contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those projected. Forward-looking statements include statements about the company's focus, collaborative partners, product candidates, and developmental status. Risks and uncertainties include whether any product candidates will be shown to be safe and efficacious in clinical trials, the timing of clinical trials, whether Vical or its collaborative partners will seek or gain approval to market any product candidates, the dependence of the company on its collaborative partners, and additional risks set forth in the company's filings with the Securities and Exchange Commission. These forward-looking statements represent the company's judgment as of the date of this release. The company disclaims, however, any intent or obligation to update these forward-looking statements.

Forward looking needs systematised megatrends in suitable granularity

Purpose – The purpose of this paper is to inquire about the applicability of the concept of granularity to the necessity of future research or – as often called in the European Union – forward looking (FL). After theoretical deliberation, it uses a planned world-wide information system as a case study for applying the notion of granularity regarding economic sectors, time steps, geographic regions and correlations for energy, water, land use and several other drivers of global change. Design/methodology/approach – A planet-wide information system might optimally include areas such as human development indicators, water demand and supply and deforestation issues. A short literature analysis on “granularity” shows this concept to have a highly culturally determined and constructivist nature. Findings – The spatial, temporal and sectoral granularity of data presentation strongly impacts conclusions and considerations while looking forward. Hence, granularity issues are of key importance for the question of which megatrends are ultimately discerned as most relevant. Practical implications – These findings may impact the regular report on global megatrends authored by the European Environment Agency, as well as world-wide energy and emission scenarios and technological foresight, such as the “Global Change Data Base” as a next step of research. Social implications – In future research, the step from purely quantitative perceptions towards structural perceptions, pattern recognition and understanding of system transitions might be facilitated. The FL statements of larger companies might be diversified, enlarged in scope and use deeper structural understanding. Originality/value – Earlier databases tend to have been focused on one or several single disciplines; the present approach, however, attempts transdisciplinarity and a multiparadigmatic approach.

Genetics, genomics and breeding of oilseed brassicas

This is the 14th volume in the series on ‘Genetics, Genomics and Breeding of Crop Plants’, each book covering one or a group of species, so far including many major crops but not the cereals. The three areas discussed in the volumes are some of the most rapidly changing areas of biology today. For each crop, genetics and genomics sees tens if not hundreds of relevant publications every year, while breeding aims and approaches change rapidly. These challenges give both the strengths and weaknesses to this volume. A synthesis of the state-of-the art with respect to oilseed brassicas is certainly needed – but it was substantially out-of-date even before publication. The brassica volume consists of 16 chapters by well-known researchers, ranging from a description of the Brassica genus, through genetic maps, markers and comparative genomics, to mutagenesis and metabolomics. Three chapters discuss breeding objectives. Overall, there is much of interest in the volume. The forward-looking statements in many chapters, and three complete chapters largely about prospects, make some important and thoughtful points. There are also a number of gaps in coverage, where I would have hoped a volume like this would be my first source of reference. For breeding, I was disappointed not to see a strong chapter on hybrid breeding, since within the last decade hybrid Brassica napus has moved from a few percent of the market to representing more than 50 %, in Canada and the UK at least. This change is alluded to in a couple of chapters, but there is no detailed consideration of what this means for the future of the crop and selection approaches. It is important for books, at least for me, to have some degree of timeless information, which I can refer back to at almost any point in the future. There are some highspots here such as a nine-page table of the 58(!) Brassica linkage maps published since 2006, a list of the 15 large-insert BAC libraries available, and three pages of insect pests. But, with a coverage of genetics and breeding, I would have also liked to see more such tables, for example with oil contents and oil compositions of the different brassicas, more information about morphological variation such as seed characters, and data about germplasm collections and what is represented in them (although taxonomy is discussed in some chapters). Somewhat surprisingly, for a book published in September 2011, the genome sequencing initiatives chapter states, ‘We expect the A, C and B genome sequences to become publicaly available of the next few years’: the A genome B. rapa sequence was published online in August 2011, with the chapter authors both being co-authors of the journal paper (Wang et al., 2011). Surely this was in time, and significant enough, to be discussed, but it gives the book immediate obselesence, with no references in this chapter later than the three general papers referrred to from 2009 (before the impact of next-generation sequencing was felt, mentioned as a prospect in other chapters). The chapter itself is largely historical, describing the history of brassica whole-genome sequencing and genetics (noting, for example, that, ‘Genome sequence information will also revolutionise genetic and physical mapping’, without elaborating on what this means and has revealed in Brassica). Is geographical spread of authorship relevant? I think so in a book on genetics and breeding of major crops where location is so important: but we have no perspective of breeding from Asia, with only one chapter on mutagenesis and mutation breeding from China, and no authors from India, or Korea where molecular and other breeding programmes are addressing major challenges. Unfortunately less surprisingly, Africa also receives little mention, despite the huge need there for plant oils, and the use of Abyssynian mustard (the BC genome tetraploid B. carinata). The book will undoubtedly be useful to many specialists in Brassica. However, the very weak index, rather superficial and generalized statements about prospects rather than the details for many techniques, and a few points where one feels the book is long out of date (although in fact only by one or two years), mean its appeal is somewhat limited.

Voluntary forward-looking statements driven by corporate governance and their value relevance

This paper examines the impact of corporate governance on the level of voluntary disclosures of forward-looking statements in the narrative sections of annual reports. It also examines whether the forward-looking statements that are driven by governance are informative about future earnings. This analysis is drawn from a large-scale sample of UK FTSE All-Share companies for financial years ending within the period January 1996–December 2007. We find that corporate governance influences companies’ decisions to voluntarily disclose these statements. The main drivers are directors’ ownership, board size, board composition, and the duality of the CEO’s role. These results suggest that better corporate governance improves reporting practice. We further find that the forward-looking statements of well governed firms improve the stock market’s ability to anticipate future earnings. Our findings have important implications for policy makers and regulators because they confirm that the effectiveness of corporate governance in the practice of disclosure is a function of certain characteristics and that the voluntary forward-looking statements of well governed firms contain value relevant information for investors.

When is good news really good news?

The impression management literature suggests that managers often resort to biased disclosures. However, there is little systematic evidence on what types of strategies management uses to achieve this bias. Do managers simply lie? Or, do they use more subtle ways of introducing positive bias into corporate narratives, such as selecting specific information items which result in a more positive impression (‘selectivity’) or by keeping their narratives vague and general (‘vagueness’)? In order to differentiate between the two scenarios, I re-examine the positive forward-looking statements examined by Schleicher and Walker (2010) and compare, across firms with improving and deteriorating financial performance, the managerial choices made in relation to eight forecast attributes. I make two observations. First, there are significant differences in the characteristics of good- and bad-news firms’ positive statements. In particular, bad-news firms’ positive statements involve more non-specific time horizons, more segmental forecasts, and more references to conditions and aims and objectives, but fewer directional forecasts, fewer numbers, and fewer reinforcing qualifiers. Second, the identified differences in good- and bad-news firms’ positive statements can be exploited for classification purposes: including into a classification model additional regressors that measure a positive forward-looking statement's level of selectivity and vagueness significantly increases the model's ability to separate firms with improving financial performance from firms with deteriorating financial performance. Overall, my results are consistent with (a) impression management operating predominantly through selectivity and vagueness and (b) selectivity and vagueness being an important signal for future financial performance.

The Determinants of Forward-looking Disclosures in Interim Reports for Non-financial Firms: Evidence from a Developing Country

This paper examines the determinants of the forward-looking disclosures (FLD) in the interim financial reports (IFRs) of non-financial firms listed on the Nairobi Securities Exchange (NSE). Data were collected from a total of 91 firm-year observations for the mid interim periods between 2009 and 2011. A FLD score was developed for each firm in the sample based on the firm’s disclosure of forward-looking statements in its IFR. The results indicate that firms with higher debt, better performance, higher capital investment and with more concentration of foreign investment tend to have more FLDs in their IFRs. Conversely, cross listed firms are associated with lower FLDs, implying that cross listed firms provide lower forward-looking information compared to non-cross listed firms. Results show a high degree of FLD for better performing firms and firms with higher financial risk. This study contributes to literature by providing evidence to which financial reporting incentives contribute to FLDs in a developing country where enforcement is weak. As a conclusion, the paper recommends firms to provide comprehensive FLDs in future to effectively mitigate informational asymmetries between the management and owners of the firms, especially firms with more concentrated foreign ownership.

Management Earnings Forecasts and Forward-Looking Statements

Management earnings forecasts have been the overwhelming focus of prior research on forward-looking disclosure, but represent only a small fraction of forward-looking statements made by managers. We use textual analysis to first identify forward-looking statements and then distinguish between “forecast-like” statements (quantitative statements referring explicitly to earnings) and “other” forward-looking statements that have been largely ignored by existing research. These other forward-looking statements are consequential: they are associated with significant investor and analyst responses. Moreover, the decision to issue these other forward-looking statements differs from the decision to issue the typically-studied earnings forecast. While managers issue fewer forecast-like statements during periods of high uncertainty, the opposite is true for other forward-looking statements. We test explanations for this behavior and conclude that managers value the controllability of non-earnings forward-looking statements more than they fear the ex post verifiability of quantitative projections. Overall, our results indicate that other forward-looking statements represent an important and under-studied component of firm disclosures and are distinct from traditionally-studied earnings forecasts.

Tagging the triggers: an empirical analysis of information events prompting sell-side analyst reports

In order to fulfill their function as information intermediaries in capital markets, sell-side equity analysts regularly issue updated forecasts on the stocks they cover. Quite often, the publication of (revised) analysts’ reports is subject to certain trigger events such as the publication of annual figures or the announcement of an upcoming merger. In this exploratory study, we develop a two-step procedure to identify the core events that trigger the release of analysts’ reports on companies that constitute the Dow Jones EuroSTOXX50 index during the three-year period from 2004 to 2006. These can be grouped into Financial Disclosures, Corporate Management, Corporate Strategy, Business Activity, Operating Environment and Share. The results suggest that sell-side analysts attach great importance to non-financial information events when transforming their earnings estimates into valuation forecasts and stock recommendations. Additionally, we link the information events identified as reasons of issuance to the summary measures disclosed in the reports in order to investigate the relationship between the report trigger and associated analyst reaction. Our findings indicate that the forecasting activity of sell-side analysts is greatly influenced by forward-looking statements made by management, strategy-related news flow, and non-company-specific information relating to the covered firm’s operating environment.

Tagging the Triggers: An Empirical Analysis of Information Events Prompting Sell-Side Analyst Reports

In order to fulfill their function as information intermediaries in capital markets, sell-side equity analysts regularly issue updated forecasts on the stocks they cover. Quite often, the publication of (revised) analysts’ reports is subject to certain trigger events such as the publication of annual figures or the announcement of an upcoming merger. In this exploratory study, we develop a two-step procedure to identify the core events that trigger the release of analysts’ reports on companies that constitute the Dow Jones EuroSTOXX50 index during the three-year period from 2004 to 2006. These can be grouped into Financial Disclosures, Corporate Management, Corporate Strategy, Business Activity, Operating Environment and Share. The results suggest that sell-side analysts attach great importance to non-financial information events when transforming their earnings estimates into valuation forecasts and stock recommendations. Additionally, we link the information events identified as reasons of issuance to the summary measures disclosed in the reports in order to investigate the relationship between the report trigger and associated analyst reaction. Our findings indicate that the forecasting activity of sell-side analysts is greatly influenced by forward-looking statements made by management, strategy-related news flow, and non-company-specific information relating to the covered firm’s operating environment.

Repsol Meets YPF: Displaying Competence in Cross-Border M&A Press Releases

Mergers and acquisitions (M&As) are often said to be risky business, especially in cross-border M&As, when an acquiring company faces a possible clash of both corporate and national cultures. This article focuses on the acquisition of the Argentine oil company Yacimientos Petroliferos Fiscales (YPF) by the Spanish oil company Repsol in 1999. In particular, using a corpus of Repsol’s M&A related press releases, the author demonstrates how the acquiring company draws on forward-looking statements, promotional language, and repetition to discursively display its financial and moral competences to negotiate the acquisition. The analysis will also show how, at a certain moment, Repsol introduces an appeasing antitrust narrative to respond to the hurt (nationalistic) feelings in YPF’s Latin American environment.

The Information Content of Forward‐Looking Statements in Corporate Filings—A Naïve Bayesian Machine Learning Approach

ABSTRACTThis paper examines the information content of the forward‐looking statements (FLS) in the Management Discussion and Analysis section (MD&A) of 10‐K and 10‐Q filings using a Naïve Bayesian machine learning algorithm. I find that firms with better current performance, lower accruals, smaller size, lower market‐to‐book ratio, less return volatility, lower MD&A Fog index, and longer history tend to have more positive FLSs. The average tone of the FLS is positively associated with future earnings even after controlling for other determinants of future performance. The results also show that, despite increased regulations aimed at strengthening MD&A disclosures, there is no systematic change in the information content of MD&As over time. In addition, the tone in MD&As seems to mitigate the mispricing of accruals. When managers “warn” about the future performance implications of accruals (i.e., the MD&A tone is positive (negative) when accruals are negative (positive)), accruals are not associated with future returns. The tone measures based on three commonly used dictionaries (Diction, General Inquirer, and the Linguistic Inquiry and Word Count) do not positively predict future performance. This result suggests that these dictionaries might not work well for analyzing corporate filings.

Managers’ Self-Serving Attribution Bias and Corporate Financial Policies

The self-serving attribution bias (SAB) refers to individuals taking responsibility for good outcomes and blaming others for bad outcomes. Consistent with the existence of managerial SAB, I find that managers tend to use more first-person pronouns (relative to second- and third-person pronouns) in the Management Discussions and Analysis Section of the 10-K filings when firm performance is better. A consequence of SAB is overconfidence (i.e., overestimating the mean and underestimating the variance of future cash flows). Consistent with this argument, managers with more SAB are more likely to issue forward-looking statements and make earnings forecasts, the tone (e.g., positive versus negative) of their forward-looking discussions has smaller variation, and their earnings forecasts tend to be overly optimistic. Firms whose managers have more SAB have higher investment-cash flow sensitivity and experience more negative market reactions around acquisition announcements. These firms also tend to have higher leverage, rely more on long-term debt financing, are more likely to repurchase stocks, and are less likely to issue dividends. Collectively, the evidence suggests that managers have self-serving attribution bias and this bias has implications for corporate policies.

Reporting on the Financial Performance of Life Insurers

The financial crisis has also affected the credibility of financial institutions' financial reporting. Life insurers, like other financial institutions, therefore, need to revamp their reporting to the investment community. The quality of reporting would benefit from explicit forward-looking statements, less emphasis on precision and more on ranges of possible outcomes and worst cases, and an increase in reporting frequency. Furthermore, internal and external financial reporting needs to be better aligned. Market-consistent fair value is defended as the preferred basis to measure assets, liabilities and earnings. As no single reporting view can provide a comprehensive picture, various views could be publicised. In addition to International Financial Reporting Standards fair value (phase II), Market-Consistent Embedded Value and Value of New Business, a third complementary view, labelled Source of Profit Analysis is proposed. This view is already used by many life insurance managers, and thus could help to better align external and internal reporting.

`We expect to report on significant progress in our product pipeline in the coming year': hedging forward-looking statements in corporate press releases

This article reports on the findings of a study of so-called `forward-looking statements' in a corpus of corporate press releases, focusing in particular on the mechanisms of hedging involved. Forward-looking statements are an important characteristic of corporate press releases in which companies make predictions about the future in an attempt to demonstrate to stakeholders that the company is making progress and that its prospects are good. Such statements are explicitly mentioned in a disclaimer which often accompanies corporate press releases and are noted to involve risks and uncertainties. This article aims to identify those lexicogrammatical forms which are typically used in forward-looking statements in press releases, including those used for the purpose of hedging, and also to try to identify the function(s) of hedging in the selected data. The data analysis points to a range of forms which function as hedges in the data. These are discussed and exemplified and, drawing on Hyland's (1998a) model in particular, an attempt is made to consider what function(s) the hedges serve.

The Determinants and Information Content of the Forward-looking Statements in Corporate Filings - A Naive Bayesian Machine Learning Approach

This paper examines the tone and content of the forward-looking statements (FLS) in corporate 10-K and 10-Q filings using a Naive Bayesian machine learning algorithm. I first manually categorize 30,000 sentences of randomly selected FLS extracted from the MDA and (2) content (i.e., profitability, operations, and liquidity etc.). These manually coded sentences are then used as training data in a Naive Bayesian machine learning algorithm to classify the tone and content of about 13 million forward-looking statements from more than 140,000 corporate 10-K and 10-Q MD&As between 1994 and 2007. I find that firms with better current performance, lower accruals, smaller size, lower market-to-book ratio, and less return volatility tend to have more positive forward-looking statements in MD&As. The average tone of the forward-looking statements in a firm's MD&A is positively associated with future earnings and liquidity, even after controlling for other determinants of future performance and there is no systematic change in the information content of MD&As over time. Finally, the evidence indicates that financial analysts do not fully understand the information content of the MD&As in making their forecasts.

A Measure of the Precision of Forward-Looking Statements in MD&As*

Even though the SEC recommends providing forward-looking information to investors, they do not provide guidance regarding how precise the forward-looking statements should be. Are firms providing precise forecasts of future performance in their MD&A narratives? This paper extends the research on MD&A narratives by providing a measure of the precision of quantitative forward-looking narratives in MD&A disclosures.

Management Earnings Forecasts and Simultaneous Release of Earnings News

This paper examines the hypothesis that when disappointing information regarding a firm's performance is released, the firm's management faces particularly strong incentives to counter the disappointing news with overly optimistic forward-looking statements. To address this issue, the paper investigates the properties of management earnings forecasts released simultaneously with earnings announcements. The paper predicts and finds that the more disappointing the earnings announcement news, the higher the optimistic bias in the simultaneously released management long-horizon forecasts of annual earnings. Since managers may use short-horizon forecasts of quarterly earnings to avoid disappointing earnings announcements, the paper also examines the interplay between management short-horizon forecasts of quarterly earnings and long-horizon forecasts of annual earnings that are released simultaneously. The paper documents a significantly negative association between the news contained in the short-horizon forecasts of quarterly earnings and the optimistic bias in the accompanying long-horizon forecast of annual earnings. The paper also investigates the link between management's decision to issue earnings guidance and the contemporaneous earnings announcement news, finding that, in general, more extreme earnings announcement news results in more earnings guidance. Finally, using market reaction tests, the paper documents that market participants are aware, at least to some extent, of management's tendency to counter disappointing earnings news with overly optimistic forecasts.

Disclosure of Timely and Forward-Looking Statements and Strategic Management of Major Institutional Ownership

This paper explores whether organisations that make more transparent corporate disclosures experience more stable patterns of institutional ownership. It builds on previous research in this area to develop a revised methodology for providing a more direct linkage between disclosure and the strategic planning goals of the organisation. While as expected there is consistent evidence that additional disclosures are associated with short-term increased share price volatility, the author suggests that increased corporate disclosure of industry-specific, non-financial and non-routinised information does increase the stability of the holdings by major institutional investors. I gratefully acknowledge assistance from Jennifer Ireland, Alexander Shyla and Bobby Rakhit. I would also like to thank Sarah Deans, Robert Hodgekinson, Andrew Jones, Brian Singleton Green, Richard Taffler and seminar participants at Cranfield University, London School of Economics and the University of Aberystwyth. The author gratefully acknowledges research funding support from CIMA (Chartered Institute of Management Accountants).

Securities litigation landscape

This paper discusses recent developments in securities litigation. First, the paper addresses class action filing trends. Class action filings decreased in 2005, both compared to 2004 and the 1996–2004 average. The article discusses possible reasons for this trend, including the impact of the United States Supreme Court's decision in Broudo v Dura Pharmaceuticals, Inc. Secondly, the article discusses Regulation FD and Securities and Exchange Commission v. Siebel Systems, Inc., et al., the first civil action brought by the SEC pursuant to Regulation FD. Thirdly, the article discusses recent developments under the Private Securities Litigation Reform Act, including the Seventh Circuit's first decision regarding the Reform Act's scienter standard, the impact of 10b5-1 trading plans, a restrictive ruling by the First Circuit on the Reform Act's safe harbour for forward-looking statements, and application of Dura by lower courts. Finally, the paper discusses the Delaware Chancery Court's decision following the trial in the Disney case.

What Counts as Fraud? An Empirical Study of Motions to Dismiss Under the Private Securities Litigation Reform Act

This article presents the findings of a study of the resolution of motions to dismiss securities fraud lawsuits since the passage of the Private Securities Litigation Reform Act in 1995. Our sample consists of decisions on motions to dismiss in securities class actions by district and appellate courts in the Second and Ninth Circuits for cases filed after the passage of the Reform Act to the end of 2001. These circuits are the leading circuits for the filing of securities class actions and are generally recognized as representing two ends of the securities class action spectrum. Post-PSLRA, the Second Circuit applies the least restrictive pleading standard to securities claims and the Ninth Circuit applies the most restrictive. We find some evidence that the Ninth Circuit's post-PSLRA reputation as being a tougher venue in which to win securities fraud class actions is born out by a significantly higher dismissal rate. The differences between the two circuits are also reflected in factors that correlate with dismissal. For example, allegations of violations of accounting principles other than revenue recognition correlate negatively with dismissal in the Second Circuit. This coefficient, however, is insignificant in our regressions for the Ninth Circuit. Allegations of revenue recognition violations are insignificant in both circuits, whether or not the issuer has been forced to restate those revenues. The circuits part ways on other factors as well: the Second Circuit is significantly less likely to dismiss cases with allegations of false forward-looking statements, a surprising result given the stringent standards for such statements imposed by the PSLRA. The Ninth Circuit is significantly less likely to dismiss complaints with allegations of '33 Act violations and the Second Circuit is more likely to dismiss cases brought by the Milberg Weiss firm. When it comes to insider trading, however, the two circuits are both skeptical and the allegations correlate with dismissal in both circuits.