ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Strategic Disclosure of Management Earnings Forecasts Revision and Stock Returns

  • Hwa Jin, Lee Honam University

Asian Tax Journal Vol. 13 No. 2 (2012), pp. 253-280

Abstract

This paper investigates whether managers' preferences for separating or combining management earnings forecasts. This paper also examines the stock price effects of alternative frames of management forecasts. The hedonic editing model, being a hybrid of cognitive psychology and microeconomics,proposes the mental coding of combinations of gains and losses using the prospect theory value function. Thaler(1985) analyzed four cases applying this model：pure gains, pure losses, mixed gains, and mixed losses. We extend prior research by investigating the descriptive validity of the hedonic editing model to management earnings forecast contexts. My primary tests are based on a sample of 62 forecasts disclosed by firms between 2002 and 2007. Several conclusions emerge from these tests. Corporate managers disclosure earnings forecasts within the context of this framework. Consistent with our predictions managers combine(separate)good/positive(bad/negative) earnings news. This disclosure framework is effective(statistically significant) after controlling for the magnitudes of earnings news. Forecast disclosures remain highly informative. My study bridges a gap between results documented in financial accounting experimental studies and studies that use archival data within natural settings(Koonce and Mercer, 2005).

Keywords

  • Management Earnings Forecasts
  • Prospect Theory
  • Hedonic Editing Model
  • Pure Gains (Losses)
  • Mixed Gains(Losses)
  • Analysts' Forecasts

Related Articles

ATJ
E-SubmissionSitemapContact Us RSS

Asian Tax Journal

Address : 3F, KICPA Bldg., 12 Chungjeongro 7-gil, Seodaemun-gu, Seoul 03736, Republic of Korea

Editor-in-Chief : Prof. Wanyong Kim Editorial Office : Dept. of Finance, Accounting & Taxation, Hanyang Cyber University, 220 Wangsimni-ro, Seongdong-gu, Seoul, Republic of Korea Tel : +82-2-2290-0418 / +82-10-8664-1117 E-mail : taxresearch2@hanmail.net