How investors value cash and cash flows when managers commit to providing earnings forecasts

Theory considers voluntary disclosure to be an important mechanism for reducing information asymmetry in the corporate setting (Bertomeu, Beyer, & Dye, 2011). Prior research on corporate cash policy suggests that investors value cash holdings more when information asymmetry is low (e.g., Drobetz, Gruninger, & Hirschvogl, 2010). Given both streams of literature, we examine whether investors value cash and cash flows higher for firms that commit to providing management earnings forecasts, an important form of voluntary disclosure. In univariate analyses, we show that committed forecasting is negatively associated with widely accepted measures of information asymmetry. In multivariate tests, we document that committed forecasting is associated with a higher market value of cash, surplus cash and operating cash flows. Our multivariate results are robust to adjustments for endogeneity in managers' forecast decision, and to the inclusion of controls for alternative uses of cash, firm information quality, information demand and governance.