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Exploring the moderating role of growth options on the relation between board characteristics and management earnings forecasts

Chan, Howard, Faff, Robert, Khan, Arifur and Mather, Paul 2013, Exploring the moderating role of growth options on the relation between board characteristics and management earnings forecasts, Corporate governance: an international review, vol. 21, no. 4, pp. 314-333, doi: 10.1111/corg.12027.

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Title Exploring the moderating role of growth options on the relation between board characteristics and management earnings forecasts
Author(s) Chan, Howard
Faff, Robert
Khan, ArifurORCID iD for Khan, Arifur orcid.org/0000-0003-4984-8021
Mather, Paul
Journal name Corporate governance: an international review
Volume number 21
Issue number 4
Start page 314
End page 333
Total pages 20
Publisher Wiley
Place of publication London, Eng.
Publication date 2013
ISSN 1472-0701
1758-6054
Keyword(s) corporate governance
growth options
management earnings forecasts
Summary Manuscript Type
Empirical
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”.
Language eng
DOI 10.1111/corg.12027
Field of Research 150199 Accounting, Auditing and Accountability not elsewhere classified
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1 Refereed article in a scholarly journal
Copyright notice ©2013, Wiley
Persistent URL http://hdl.handle.net/10536/DRO/DU:30053044

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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Created: Thu, 20 Jun 2013, 11:55:51 EST by Aysun Alpyurek

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