Voluntary Management Earnings Forecasts and Value Relevance in Financial Reports

We propose a positive association between voluntary MEFs and the value relevance of earnings in audited financial reports based on the confirmation, signaling, and expectation management effects of voluntary MEFs. China is characterized by a weaker information environment, which provides a meaningful institutional setting for testing the usefulness of MEFs. We find that firms that provide voluntary MEFs have significantly higher value relevance of earnings and earnings components (i.e., operating cash flows and normal/abnormal accruals) in financial reports. We also find that the specificity of MEFs is associated with higher value relevance of earnings. In a placebo test, we do not find a similar relation between MEFs and the value relevance of balance-sheet items in most regressions, indicating that our findings are unlikely to be driven by other differences in fundamentals. Our findings are robust to different research designs and confirm the usefulness of voluntary MEFs in emerging markets.