THE RELATIONSHIP BETWEEN DIRECTOR INDEPENDENCE, REPUTATION AND MANAGEMENT EARNINGS FORECASTS

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Abstract

Informative management earnings forecasts potentially reduce information asymmetries in capital markets. We examine the relationship between corporate governance and management earnings forecasts. We extend the prior literature by examining the impact of independent director reputation on characteristics of management forecasts, by refining the previously used proxy for director independence and by distinguishing between routine and non-routine forecasts in the Australian governance environment. We find a significant positive relationship between the likelihood and frequency of firms issuing management earnings forecasts and our measures of audit committee independence and independent director reputation but not board independence. However, there is some evidence that director independence is related to more specific forecasts. These results are driven by routine earnings forecasts over which, it is argued, management have greater discretion.

Keywords: Management Earnings Forecasts, Corporate Governance, Director Reputation

How to cite this paper: Chan, H., Faff, R., Mather, P., & Ramsay, A. (2008). The relationship between director independence, reputation and management earnings forecasts. Corporate Ownership & Control, 6(2-3), 404-419. https://doi.org/10.22495/cocv6i2c3p7