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Management forecasts are an important source of information for the Japanese stock market. In this paper, we use management forecast error as a proxy for disclosure quality to investigate the relationship between disclosure quality and idiosyncratic risk.We find that management forecast error is positively related to idiosyncratic risk, suggesting that high-quality public information reduces idiosyncratic risk. Furthermore, we present evidence that management forecast error is less positively related to idiosyncratic risk in relatively good information environments.

This paper investigates the relative importance of parent-only and subsidiary earnings in Japanese firms using a variance decomposition methodology. The findings generally indicate that subsidiary return on equity (ROE) news has a greater effect in driving current stock returns than parent-only ROE news. In addition, we show that as subsidiary companies’ performance becomes relatively important as an indicator of consolidated performance, the market pays greater attention to subsidiary ROE news. Finally, we show that the market does not pay greater attention to subsidiary earnings when consolidated earnings are negative. In that case, parent-only earnings become a good indicator of consolidated performance.

It is believed to be increasingly important for firms to be engaged in extensive disclosure in Japan. This paper simultaneously investigates the relationship between Corporate Social Performance (CSP) and corporate attitude toward extensive disclosure and between corporate attitude toward extensive disclosure and corporate reputation. We find that corporate attitudes toward extensive disclosure and CSP are positively correlated and that corporate attitudes toward extensive disclosure and corporate reputation are positively correlated. This evidence indicates that firms are engaged in extensive disclosure as a component of their corporate strategy in social responsibility activities and that those with more positive attitudes toward extensive disclosure appear to be able to develop and maintain better relationships with their various stakeholders.

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