پیش بینی های مدیریت و هزینه سرمایه گذاری منصفانه: شواهد بین المللی Management forecasts and the cost of equity capital: international evidence

1 Introduction Management forecasts are one of the primary ways managers voluntarily disclose private, future-oriented financial information to capital market participants (Healy and Palepu 2001). As such, they represent an important component of a firm’s overall information environment (Hirst et al. 2008). Research finds that management forecasts are more informative than other types of financial disclosures, including earnings announcements, filings required by the Securities and Exchange Commission (SEC), and analyst forecasts (Beyer et al. 2010). In this study, we investigate the relation between management forecasts (and the characteristics of those forecasts) and firms’ cost of equity capital (COC) in an international setting. We also examine whether these relations are influenced by country-specific institutional factors. Theory suggests that voluntary disclosure should reduce firms’ COC by reducing estimation risk, information asymmetry, or both (Diamond and Verrecchia 1991; Easley and O’Hara 2004; Hughes et al. 2007). Although some evidence using U.S. data supports this idea (Baginski and Rakow 2012; Balakrishnan et al. 2014), little empirical evidence in non-U.S. settings exists.1 Ex ante, it is unclear whether and how management forecasts affect the COC for international firms because institutional factors that might influence this relation can vary substantially across countries. We examine three institutional factors that we posit should be important for the relation between management forecasts and the COC—namely, investor protection, media penetration, and mandatory disclosure requirements. Theoretical work demonstrates that disclosure must be credible to be informative and reduce information asymmetry and the COC (Crawford and Sobel 1982; Stocken 2000; Verrecchia 2001), but little direct empirical evidence exists.2 An international setting provides an advantage when exploring this issue because country-level institutional factors can affect the level of disclosure credibility and the importance of credibility cannot be well understood within a single regime (Ball et al. 2012).3 We also examine the impact of media penetration because the media plays a critical role in distributing firm-specific information to investors and hence influences the ability of management forecasts to reduce the COC.4 While prior cross-country studies focus mainly on how media penetration influences the response to mandatory disclosure (Griffin et al. 2011; Cao et al. 2016), we suggest that the effect of the media should be stronger for voluntary disclosure because mandatory disclosure is often required to be publicly distributed through specific channels established by stock exchanges. Thus, mandatory disclosure is typically accessible to investors even when the media is not highly developed. Our findings on the importance of media penetration for the relation between voluntary disclosure and the COC complement findings from previous mandatory disclosure studies and provide support for the critical role that the media plays in the dissemination of voluntary disclosure.