“Organizational design and voluntary disclosure: The effect of target settng quality on the provision and nature of management guidance” by Prof. Frank MOERS
Prof. Frank MOERS
Professor of Management Accounting & Control
School of Business and Economics
We investigate the relation between organizational design choices and a firm’s voluntary disclosures. Identifying target settng as one of the key internal processes we show that having a high quality target settng process increases the likelihood that firms issue a management forecast. This finding is consistent with disclosure theory that suggests that the probability of voluntary disclosure increases in the quality of a manager’s private information. Moreover, conditional on issuing a forecast, we find that such forecasts are more likely to be pessimistically biased, consistent with managers using their informational advantage to strategically bias their forecasts and increase the probability of beating their own as well as analysts’ forecasts. This latter finding casts considerable doubt on the maintained assumption that forecast accuracy is reflective of a high quality internal information environment. Overall, we contribute to the literature by documenting the interrelation between a firm’s internal (design) choices and their communication with the capital market.