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.
- 512 Business and Management
Athanasakou, V., & Hussainey, K. (2014). The perceived credibility of forward-looking performance disclosures. Accounting and Business Research, 44(3), 227-259. https://doi.org/10.1080/00014788.2013.867403