The Role of Supplementary Statements with Management Earnings Forecasts

Authors

  • Amy P. Hutton,

    1. Dartmouth College
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  • Gregory S. Miller,

    1. Harvard University
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  • Douglas J. Skinner

    1. University of Michigan. Hutton and Miller are grateful to the Harvard Business School Division of Research and Skinner is grateful to KPMG for generous financial support. We thank Ray Ball, Paul Healy, Molly Mercer, Grace Pownall, workshop participants at the American Accounting Association annual meeting in Atlanta, Harvard, London Business School, Northwestern, and Utah, and especially an anonymous referee for comments on earlier versions.
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ABSTRACT

We investigate managers' decisions to supplement their firms' management earnings forecasts. We classify these supplementary disclosures as qualitative “soft talk” disclosures or verifiable forward-looking statements. We find that managers provide soft talk disclosures with similar frequency for good and bad news forecasts but are more likely to supplement good news forecasts with verifiable forward-looking statements. We examine the market response to these forecasts and find that bad news earnings forecasts are always informative but that good news forecasts are informative only when supplemented by verifiable forward-looking statements, supporting our argument that these statements bolster the credibility of good news forecasts.

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