Abstract
Purpose – The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement. Design/methodology/approach – Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non-forecasting years. Findings – Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non-forecasting years decreases information asymmetry during a three-day announcement period and increases in a post-announcement period up to seven days. No significant change in information asymmetry between pre- and post-announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post-announcement days, and experience a decrease in information asymmetry in a five to seven-day post-announcement period. Originality/value – This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.
| Original language | English |
|---|---|
| Pages (from-to) | 62-73 |
| Number of pages | 12 |
| Journal | International Journal of Accounting & Information Management |
| Volume | 16 |
| Issue number | 1 |
| DOIs | |
| State | Published - 27 Jun 2008 |
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Keywords
- Adverse selection cost
- Earnings
- Financial forecasting
- Good and bad news
- Information asymmetry
- Management forecasts
Cite this
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Management earnings forecasts and adverse selection cost : Good vs bad news forecast. / Young Baek, H.; Kim, Dong Kyoon; Kim, Joung W.
In: International Journal of Accounting & Information Management, Vol. 16, No. 1, 27.06.2008, p. 62-73.Research output: Contribution to journal › Article
TY - JOUR
T1 - Management earnings forecasts and adverse selection cost
T2 - Good vs bad news forecast
AU - Young Baek, H.
AU - Kim, Dong Kyoon
AU - Kim, Joung W.
PY - 2008/6/27
Y1 - 2008/6/27
N2 - Purpose – The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement. Design/methodology/approach – Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non-forecasting years. Findings – Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non-forecasting years decreases information asymmetry during a three-day announcement period and increases in a post-announcement period up to seven days. No significant change in information asymmetry between pre- and post-announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post-announcement days, and experience a decrease in information asymmetry in a five to seven-day post-announcement period. Originality/value – This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.
AB - Purpose – The aim of this paper is to investigate the effect of management earnings forecasts on the level of information asymmetry around subsequent earnings announcement. Design/methodology/approach – Employing the adverse selection cost method suggested by George et al., the paper compares for each sample firm the adverse selection cost around earnings announcement in forecasting years with that in non-forecasting years. Findings – Consistent with Diamond and Verrecchia is the finding that the earnings announcement in non-forecasting years decreases information asymmetry during a three-day announcement period and increases in a post-announcement period up to seven days. No significant change in information asymmetry between pre- and post-announcement periods when firms released a “good” news forecast is found. The firms that previously released a “bad” news forecast experience a significantly lower information asymmetry than those that did not forecast during announcement or post-announcement days, and experience a decrease in information asymmetry in a five to seven-day post-announcement period. Originality/value – This paper provides the first empirical reports on the different information asymmetry changes around earnings announcements followed by a “good” news management forecast from those followed by a “bad” news forecast.
KW - Adverse selection cost
KW - Earnings
KW - Financial forecasting
KW - Good and bad news
KW - Information asymmetry
KW - Management forecasts
UR - http://www.scopus.com/inward/record.url?scp=84992957337&partnerID=8YFLogxK
U2 - 10.1108/18347640810887762
DO - 10.1108/18347640810887762
M3 - Article
AN - SCOPUS:84992957337
VL - 16
SP - 62
EP - 73
JO - International Journal of Accounting & Information Management
JF - International Journal of Accounting & Information Management
SN - 1834-7649
IS - 1
ER -