The use of downside information to enhance investors' credibility judgments of good news management forecasts

Harris, Ling L.

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https://hdl.handle.net/2142/18519 Copy

Description

Title

The use of downside information to enhance investors' credibility judgments of good news management forecasts

Author(s)

Harris, Ling L.

Issue Date

2011-01-21T22:44:16Z

Director of Research (if dissertation) or Advisor (if thesis)

Jackson, Kevin E.

Doctoral Committee Chair(s)

Jackson, Kevin E.

Committee Member(s)

• Elliott, W. Brooke
• Krische, Susan D.
• Otnes, Cornelia C.
• Roese, Neal J.

Department of Study

Accountancy

Discipline

Accountancy

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Management forecast credibility
• downside supplementary information
• investor judgments

Abstract

A challenge that corporate managers face is how to enhance the credibility of their good news earnings forecasts. In the first part of my dissertation, I review the literature on two-sided advertisement from the marketing literature and the literature on management credibility in accounting. I also explain how the two-sided advertising literature and the prior credibility framework can serve as the basis for my predictions in my experimental study about a mechanism to enhance management forecast credibility. In the second part of the dissertation, I experimentally test and find evidence that managers can enhance their forecast credibility by supplementing their good news forecasts with downside information. I also document the boundary conditions of the credibility enhancement by the disclosure of downside information. First, I predict and find that the credibility-enhancing effect of the downside supplementary information is moderated by the extent to which investors perceive managers can control the factors described in the downside information. My results also suggest that investors’ perceptions of managements’ forthcomingness mediate the influences of perceived management controllability on investors’ forecast credibility judgments. Second, I predict and find some support that the credibility-enhancing effect is moderated by the proximity of the downside information to the good news forecast. Overall, I add to the literature by showing that managers can use a mechanism – namely, supplementing a good news forecast with downside information – to enhance the credibility of the good news forecast. My findings are important given that managers desire to understand factors that individually and collectively enhance the credibility of their disclosures.

Graduation Semester

2010-12

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http://hdl.handle.net/2142/18519

Copyright and License Information

Copyright 2010 Ling L. Harris

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