Are management forecasts informative?

1994 to management forecasts when they are released. The market reaction can be measured by absolute cumulative market-adjusted abnormal returns ACAR around management forecast release date. Table 8 provides a reconciliation of the sample data and reports the sequential filters applied to obtain the final observation. From the 4,483 management forecasts obtained from the NEWSCENTER database, we remove 2,028 forecasts which have other events in 14 days surrounding management forecast release date. Next, we remove 91 forecasts which have unavailable stock returns in the DATASTREAM database. Finally, we obtain 2,364 management forecast disclosures from 260 firms. ================================= Insert Table 8 here. ================================= Consistent with prior study which found that management forecast disclosures provide useful information for capital markets, results of total management forecasts on three-day -1,+1, five-day -2,+2, and seven-day -3,+3 windows centered on management forecast date reported in table 9 reveal the significant market reaction to management forecast disclosures surrounding management forecast release date. Specifically, ACAR in all three windows are significantly positive in the sample period. 364 ================================= Insert Table 9 here. ================================= According to the distribution of management forecast disclosures in section 4.1, we find that firms in property and construction, resources, and technology industries are more likely to provide management forecasts than others. Most of firms in these industries are large firms i.e., have high market capitalization. Prior study suggests that market differently react to accounting 364 We also employ the market-model abnormal returns using a 100-day estimation period from day t-107 to day t-8 for beta estimation. Results not reported are qualitatively identical. 1995 numbers of firm depend on its size [Freeman 1987]. We find that forecast firms are more likely to disclose management forecasts prior end of accounting period than after end of accounting period. Prior study documents that timing of forecasts affect information content of management forecasts [Anilowski et. al. 2007]. Additionally, we also find that half of management forecast disclosures are annual management forecasts. Pownall et. al. 1993 indicates that quarterly management forecasts are more informative than annual management forecast. Therefore, we provide additional test to examine whether industries the forecast firms are in, forecast timing, and forecast horizon affect informativeness of management forecasts. To do so, we partition our samples by forecast firm industry, forecast timing e.g., before or after the end of an accounting period, and forecast horizon e.g., quarterly or annual forecast. For forecast firm industry, empirical evidences in table 9 show significantly positive ACAR for all three windows. Therefore, management forecasts of all firm industries are informative. 365 To assess forecast timing, we classify management forecasts into two groups: forecasts which are issued before and after end of period. The results in Table 9 shows that the timing of forecast is not affected to information content of management forecasts. We also observe significantly positive market reaction in all three windows. Therefore, timing of forecast is not matter since management forecasts which are disclosed before or after end of period are also informative. 366 Finally, we investigate forecast horizons by dividing management forecasts into three groups. Forecasts in the first group are stand-alone quarterly forecasts. Forecasts in the second group are stand-alone annual forecasts. Forecast in the last group are concurrent quarterly and annual forecasts. Again, we also find significantly positive ACAR in all three windows. 367 365 Unreported results indicate that ACARs of all firm industries are insignificantly different. 366 Unreported results show insignificant difference in ACAR between forecasts issued before and after end of period. 367 Unreported findings show that information content among forecast horizons is insignificantly different. 1996

5. Conclusion and Contributions

This study aims at providing empirical evidence on management forecast disclosures in Thailand as well as information content of management forecast disclosures. We hand-collect 4,483 management forecast disclosures of listed companies issued during 12-month period starting January 2005 and 12-month period starting July 2006. Our results show that almost 70 of Thai lasted firms voluntarily disclose their forecasts at least once during our sample periods and on average, each forecast firm issues 8-9 forecasts each year. Firms in property and construction, resources, and technology sectors are more likely to issue management forecasts than are other firms. Specifically, on average, each forecast firm in these sectors issues 10-12 forecasts each year. A plausible explanation is that most of these firms have a large number of analysts following and therefore they maintain their reputation by voluntarily issuing management forecasts. This study also examines how early forecast firms issue their forecasts The results show that most of quarterly and annual management forecasts are issued before end of accounting period rather than after end of accounting period. As expectation, since the SET does not encourage firms to disclose short term information, firms are more likely to issue management forecast before end of accounting period than after end of accounting period. Forecast firms issuing quarterly forecasts prior to after the end of accounting period, on average, issue their forecasts 6 weeks prior to 3 weeks after the end of accounting period, and that forecast firms issuing annual forecasts prior to after the end of accounting period, on average, issue their forecasts 6 months prior to one month after the end of accounting period. Obviously, number of days of quarterly forecasts is shorter than annual forecasts, regardless timing of forecast e.g., before or after end of accounting period. Additionally, this study investigates forecast horizons and forecast items forecast firms choose for their forecasts and documents that forecast firms are more likely to issue stand-alone annual forecasts and concurrent quarterly with annual forecasts than stand-alone quarterly 1997 forecasts. Since the SET allows firms to disclose only annual forecasts, firms are less likely to provide stand-alone quarterly forecasts. As for forecast items, this study documents that annual forecasts both stand-alone annual and concurrent annual forecasts are more likely to be revenue forecasts; stand-alone quarterly forecasts are more likely to be earnings forecasts while concurrent quarterly forecasts are more likely to be revenue forecasts. However, overall distribution show that most of management forecast, regardless forecast horizon, are more likely to be revenue forecasts. The reason is because the SET does not permit firms to disclose earnings forecasts. Moreover, this study examines forecast forms forecast firms choose for their forecasts and finds that quarterly revenue and earnings forecasts are more likely to be in the qualitative and semi-numeric forms; annual revenue forecasts are more likely to be point estimates and in semi-numeric form while annual earnings forecasts are more likely to be in the qualitative form. According to the disclosure guidelines mandated by the SET, firms do not provide quarterly forecasts. Compared to annual management forecasts, therefore, quarterly management forecasts, regardless forecast item, are in less precise form. This study also documents that most of earnings forecasts, both quarterly and annual, reveal net income figures. Moreover, this study investigates whether management forecasts of Thai listed firms are informative and documents that absolute cumulative abnormal returns around management forecast dates are significantly positive, suggesting that management forecast disclosures are informative. Results are consistent with prior studies on information content of management forecasts of US firms. Additionally, the information content of management forecast is not affected by industry forecast firms are in, forecast timing, and forecast horizon. The study is the first study that provides empirical evidence on management forecast practices and the usefulness of management forecasts in Thailand. Our results provide contributions to financial analysts and investors, management, and the Stock Exchange of Thailand.