Moral hazard, firms’ internal governance and management earnings forecasts

This paper investigates the role of management earnings forecasts in mitigating information asymmetry between investors andmanagers relating to moral hazard, and explains how earnings guidance facilitates monitoring. I demonstrate that firms that are more susceptible to moral hazard problems and mor...

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Main Author: LEE, Jimmy
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2010
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Online Access:https://ink.library.smu.edu.sg/soa_research/796
https://ink.library.smu.edu.sg/context/soa_research/article/1795/viewcontent/SSRN_id1650289.pdf
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spelling sg-smu-ink.soa_research-17952017-10-20T05:55:24Z Moral hazard, firms’ internal governance and management earnings forecasts LEE, Jimmy This paper investigates the role of management earnings forecasts in mitigating information asymmetry between investors andmanagers relating to moral hazard, and explains how earnings guidance facilitates monitoring. I demonstrate that firms that are more susceptible to moral hazard problems and more difficult to monitor are also more likely to issue annual earningsforecasts and they do so more frequently. In addition, I examine how firm internal governance drives forecasting decisions andshow that stronger board governance and managerial equity incentives are associated with higher likelihood and frequency of forecast issuance. Finally, I provide robust evidence that managerial equity incentives are associated with more informative andhigher quality guidance. In particular, I find that these forecasts are more accurate, unbiased, more specific and timely, consistent with equity incentives aligning shareholders’ and managers’ interests regarding disclosure decisions. However, I find mixed evidence on the association between board governance and forecast quality. 2010-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/soa_research/796 https://ink.library.smu.edu.sg/context/soa_research/article/1795/viewcontent/SSRN_id1650289.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Accountancy eng Institutional Knowledge at Singapore Management University Earnings guidance corporate governance executive compensation Accounting Corporate Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Earnings guidance
corporate governance
executive compensation
Accounting
Corporate Finance
spellingShingle Earnings guidance
corporate governance
executive compensation
Accounting
Corporate Finance
LEE, Jimmy
Moral hazard, firms’ internal governance and management earnings forecasts
description This paper investigates the role of management earnings forecasts in mitigating information asymmetry between investors andmanagers relating to moral hazard, and explains how earnings guidance facilitates monitoring. I demonstrate that firms that are more susceptible to moral hazard problems and more difficult to monitor are also more likely to issue annual earningsforecasts and they do so more frequently. In addition, I examine how firm internal governance drives forecasting decisions andshow that stronger board governance and managerial equity incentives are associated with higher likelihood and frequency of forecast issuance. Finally, I provide robust evidence that managerial equity incentives are associated with more informative andhigher quality guidance. In particular, I find that these forecasts are more accurate, unbiased, more specific and timely, consistent with equity incentives aligning shareholders’ and managers’ interests regarding disclosure decisions. However, I find mixed evidence on the association between board governance and forecast quality.
format text
author LEE, Jimmy
author_facet LEE, Jimmy
author_sort LEE, Jimmy
title Moral hazard, firms’ internal governance and management earnings forecasts
title_short Moral hazard, firms’ internal governance and management earnings forecasts
title_full Moral hazard, firms’ internal governance and management earnings forecasts
title_fullStr Moral hazard, firms’ internal governance and management earnings forecasts
title_full_unstemmed Moral hazard, firms’ internal governance and management earnings forecasts
title_sort moral hazard, firms’ internal governance and management earnings forecasts
publisher Institutional Knowledge at Singapore Management University
publishDate 2010
url https://ink.library.smu.edu.sg/soa_research/796
https://ink.library.smu.edu.sg/context/soa_research/article/1795/viewcontent/SSRN_id1650289.pdf
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