gender differential paper IJCRB

ijcrb.webs.com
JUNE 2011
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS VOL 3, NO 2
information asymmetry. (Millicent Chang, Gino D’Anna, Iain Watson, and Marvin Wee
2008) Previous literature on disclosure quality reflects that an effective investor relation can
foster higher disclosure quality. According to (Kaohsiung, Taiwan 2008) firms with better
information disclosure quality do not show any direct but an indirect impact on corporate
performance. They further state that it is proper to measure disclosure quality by corporate
reputation. Previous literature has failed to lay emphasis and depict the effect of disclosure
quality of a firm on investors’ decision which needs further study and this study will help us
in doing so.
The purpose of this study, keeping in view the complexity of the investor decision,
information demands of the investor, biasness presence in the information, disclosure quality
of the issued forecasts and the importance of forecasts to be market competitive investor
decision is to be further studied in order to better understand the situations investors face.
This study will help us in analyzing the investors’ choices when the role of disclosure quality
is playing its part.
Literature Review and Hypothesis Development
Management earnings forecasts are a valuable tool for a firm to communicate its expectations
to market participants. These forecasts are important for investors as they inform them of the
firm’s future prospects, information asymmetry is also lessened, and these reduce the firm’s
cost of capital by higher confidence in the investor’s mind. Prior literature on management
forecasts has been looked at various angels to judge their impact on investors’ choices. Like
(Ball and Brown 1968) has focused on market efficiency with respect to earnings information
they argue that it has attracted substantial attention from accounting researchers they also lay
weigh that investors response to Post Earnings Forecasts change the managements
perspective when issuing such forecasts making the information bias and increase the
information asymmetry thereof. In our study independent variable is Management Forecast
and specifically point and range forecast. Previously literature has focused on forecasts in
various aspects. Little information is available on Point and Range Forecasts. But since Point
and Range is also a Forecast we assume that these forecasts will behave exactly like
Management Forecast and the previous literature of management forecast stands true for
these forecast as well.
H1: Range Forecasts will behave as other Management Forecast.
These forecasts were first discussed by (Highhouse 1994). They explain that Point Forecast is
one estimate of mainly Firm’s EPS whereas in Range Forecast firms provide a minimum and
maximum value of EPS and investor has to use his own perception, skills, knowledge,
experience, and evaluating abilities to judge the situation and reach at a conclusion of
whether to make an investment choice or not. When faced with range forecasts investors
evaluate the possible outcomes and make their investment choices. But the question is how
they evaluate such information, what are the factors involved and what affects different
investor’s to react differently? Previous studies of management’s forecasts show that
earnings forecast affect earnings management (Sunil Dutta, Frank Giglert 2002) biased
information is issued to affect the stake holders decision, (Bin Ke, Yong Yu 2006) credibility
of forecasts affects the stake holder’s decision (D . Eruchirst , Lisakoonce, 2007) existence
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