The perceived credibility of forward-looking performance disclosures

Vasiliki Athanasakou, Khaled Hussainey

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    Abstract

    We investigate the credibility of forward-looking performance disclosures (FLPDs) in the narrative sections of annual reports, as perceived by investors. Our proxy for these disclosures is an index of statements about future performance. We find that companies issue more FLPDs when raising debt or conveying bad news in the financial statements. In the presence of these managerial incentives, investor reliance on FLPDs increases with the quality of earnings reported in the audited financial statements. Our results suggest that firms derive a benefit in terms of higher credibility for their narrative disclosures from having a reputation for high quality earnings.
    Original languageEnglish
    Pages (from-to)227-259
    Number of pages33
    JournalAccounting and Business Research
    Volume44
    Issue number3
    Early online date20 Feb 2014
    DOIs
    Publication statusPublished - 4 May 2014

    Keywords

    • forward-looking statements
    • voluntary disclosures
    • managerial incentives
    • earnings quality

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