Management forecasts of volatility

Abstract

We examine the predictive information content of the management forecasts of stock return volatility (i.e., expected volatility) that are disclosed in annual reports. We find that expected volatility predicts near-term and longer-term stock return volatility and earnings volatility incremental to implied volatility, historical volatility, firm characteristics, and alternative measures of uncertainty. We also find that expected volatility reflects managers’ private information about their firms’ future investment activities, such as mergers and acquisitions and R&D intensity. Finally, we find that the predictive power of expected volatility shrinks when managers have stronger incentives to manage earnings. Overall, we provide novel evidence that management forecasts of volatility contain private information about future uncertainty that can help forecast volatility.

Show Me the Money! Dividend Policy in Countries with Weak Institutions

“…This suggests that for firms in weak-institution countries, SOA and financial statement attestation (as proxied by higher audit fees) act as complements, allowing firms to make a more credible commitment to return economic earnings to investors. In column 4, we find a significantly positive coefficient on the interaction of Return Volatility-a measure of information uncertainty (Zhang [2006], Ellahie and Peng [2021]) that we calculate as the standard deviation of daily stock returns over the prior year-and Institutional Quality. This finding suggests information and agency conflicts are less pronounced (i.e., information uncertainty is lower) in weak-as opposed to strong-institution countries when the firm has a high SOA.…”

A Review Analysis of Earnings Management Report Disclosure

“…One, Generally Accepted Accounting Principles (GAAP), and second, the International Financial Reporting Standard (IFRS). It has been used extensively to examine several matters such as taxation (Folorunso & Lokanan, 2022;Fernando et al, 2021), board characteristics (Khan & Kamal, 2022;Almarayeh et al,2022), stock return (Ellahie & Peng, 2021;Derun & Mysaka, 2021;Al Mamun et al, 2021;Bouaziz et al, 2020), readability (El-Din et al, 2021;Liu & Liu, 2021;Bradley et al,2021;Arora & Chauhan, 2021;Napier & Stadler, 2020), corporate social responsibility (Habbash & Haddad, 2019), and award (Deng et al, 2020) in last four years.…”

“…For centuries, financial report has been used to forecast stock return (Ellahie & Peng, 2021;Derun & Mysaka, 2021) and firms that have top management counsel (TMC) are less likely to have stock price decline (Al Mamun et al, 2021). Al Mamun et al (2021) found that TMCs are more effective at lowering the risk of collisions when they are the board members as their role is to monitor the reduction of negative news hoarding, which lowers the risk of earnings management.…”