Reputation management and the disclosure of earnings forecasts

In this paper, managers differ from each other in terms of the probability that they are “forthcoming” (and disclose all the earnings forecasts they receive) or “strategic” (and disclose the earnings forecasts they receive only when it is in their self-interest to do so). Strategic managers choose whether to disclose their forecasts based on both the disclosure’s effects on their firms’ stock price and on their reputation among investors for being forthcoming. Our findings include: strategic managers can build a reputation for being forthcoming by disclosing unfavorable forecasts; managers’ incentive to build a reputation for being forthcoming may be so strong that they disclose even the most negative forecasts; as managers become more concerned about their reputation: (a) the current price of the firm in the event the manager makes no forecast increases; (b) managers who have a high probability of behaving strategically (as forthcoming) in the future issue forecasts more (less) often in the present.