The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts

We investigate the relation of the board of directors and institutional ownership with the properties of management earnings forecasts. We find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently....

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Bibliographic Details
Published in:Journal of accounting research 2005-06, Vol.43 (3), p.343-376
Main Authors: AJINKYA, BIPIN, BHOJRAJ, SANJEEV, SENGUPTA, PARTHA
Format: Article
Language:English
Subjects:
Accounting
Analytical forecasting
Bias
Business management
Business structures
Control variables
Corporate governance
Correlation analysis
Disclosure
Earnings
Earnings forecasting
Econometrics
Empirical research
Forecasts
Investors
Management information systems
Organizational structure
Outside directors
Ownership
Point forecasts
Property ownership
Shareholders
Studies
U.S.A
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Summary:We investigate the relation of the board of directors and institutional ownership with the properties of management earnings forecasts. We find that firms with more outside directors and greater institutional ownership are more likely to issue a forecast and are inclined to forecast more frequently. In addition, these forecasts tend to be more specific, accurate and less optimistically biased. These results are robust to changes specification, Granger causality tests, and simultaneous equation analyses. The results are similar in the pre-and post-Regulation Fair Disclosure (Reg FD) eras. Additional analysis suggests that concentrated institutional ownership is negatively associated with forecast properties. This association is less negative in the post-Reg FD environment, which is consistent with Reg FD reducing the ability of firms to privately communicate information to select audiences.
ISSN:0021-8456
1475-679X
DOI:10.1111/j.1475-679x.2005.00174.x