Exploring the Moderating Role of Growth Options on the Relation between Board Characteristics and Management Earnings Forecasts


  • Howard Chan,

  • Robert Faff,

  • Arifur Khan,

  • Paul Mather

Address for correspondence: Paul Mather, La Trobe Business School, La Trobe University, Vic 3086 Australia. Tel: 61 3 9479 5264; Fax: 61 3 9479 3669; E-mail: p.mather@latrobe.edu.au


Manuscript Type


Research Question/Issue

This study examines whether director independence, reputation, and financial expertise are related to management earnings forecast (MEF) activity. In particular, we examine whether such a relationship is moderated by firms’ growth options.

Research Findings/Insights

Using Australian archival data for 1,928 firm-years between 1999 and 2006, we find several board characteristics have a significant positive relationship with: (1) the likelihood of firms issuing MEFs; (2) their specificity; (3) their accuracy; and (4) a negative relationship with their bias. For (1), (2), and (3) we show that these relationships are accentuated for firms with high growth options.

Theoretical/Academic Implications

While the theory of voluntary disclosure suggests firms will disclose information that is favorable to them or their managers, well-governed firms issue informative MEFs that potentially reduce information asymmetries in capital markets. We extend the prior literature by showing that such a relation is enhanced in the presence of information asymmetry and moral hazard associated with growth options.

Practitioner/Policy Implications

Our results have strategic implications for nomination committees by showing that independent directors and those with strong reputations and financial expertise enhance the governance of high growth firms. We also inform the regulatory debate by showing that good corporate governance enhancing disclosure quality is context-specific – it is not a case of “one size fits all”.