Earnings Non-synchronicity and Voluntary Disclosure

Earnings non-synchronicity captures the extent to which firm-specific factors determine a firm’s earnings, and has important implications to a firm’s information environment. Prior research shows that high earnings non-synchronicity impedes corporate outsiders’ information processing. Given managers generally possess superior information about their firms’ unique operating and reporting strategies, we extend prior research by examining the influences of earnings non-synchronicity on managers’ propensity to provide voluntary disclosures and on the market’s reaction to management disclosures. Empirical evidence shows that managers are more likely to provide earnings forecasts as earnings non-synchronicity increases. In addition, the stock price response coefficient of management forecast news increases with earnings non-synchronicity, suggesting that investors perceive management forecasts as being of higher quality than investors’ own information when firm-specific factors are more important in earnings determination. Correspondingly, we find that the relative accuracy of management forecasts (compared with the accuracy of prevailing analyst consensus forecasts) improves with earnings non-synchronicity.