BlueSky Thinking Summary

The article considers the strategic dilemma of whether executives of publicly traded companies should disclose earnings forecasts ahead of official reporting deadlines.

While the SEC requires quarterly and annual financial disclosure, many companies often make voluntary disclosures of earnings guidance, usually when earnings are strong to help prop up stock prices.

Failure to disclose might give investors a reason to infer or deduce that performance was bad, which would drive down stock values.

research at Kellogg by Jung Min Kim shows that executives are more likely to disclose adverse forecasts when regulatory changes decrease uncertainty about their motives.

One very good example of how transparency would affect disclosure decisions is the 2006 SEC rule that required detailed disclosure of executive compensation.

A variety of studies document a resulting increase in earnings forecasts—negative as well as positive—by affected firms.

This research sheds light on the complex relationship between regulatory transparency, executive incentives, and corporate disclosure strategies at the very heart of investor understanding and market stability.