Corporate governance reforms and voluntary disclosure: International evidence on management earnings forecasts

This study examines whether and how a country’s implementation of corporate governance reforms affects the propensity and properties of management earnings forecasts. We propose competing hypotheses that the implementation of corporate governance reforms will either increase or reduce the likelihood of management earnings forecasts. Our sample includes public firms from 22 countries spanning from 2004 to 2009. Using a difference-in-differences (DID) research design and logistic regressions, we compare the change in earnings forecast practices between firms domiciled in countries that implemented corporate governance reforms and firms domiciled in countries that did not. We find that the implementation of corporate governance reforms in a country increases the propensity of firms in that country to issue earnings forecasts. However, the implementation of corporate governance reforms in a country does not significantly influence the quality of earnings forecasts issued in the post-reform period. Also, the effect of reforms on the level of earnings forecasts issued by firms is greater for countries adopting the comply-or-explain type of reform, for firms in countries with a weaker level of pre-reform corporate governance, and for countries with a common law legal origin. Overall, our findings shed light on how strengthened corporate governance affects firms’ voluntary disclosure practices.