5. Conclusion
We examine the impact of high levels of managerial earnings forecasts, an important form of voluntary disclosure, on corporate risk-taking and firm value. We first verify, as in prior research, that corporate risk-taking is associated with higher future firm value. We then document a negative relation between high levels of forecasting and corporate risk-taking. Finally, we provide evidence suggesting that high levels of managerial earnings forecasts reduce the positive association between corporate risk-taking and future firm value. Our results are robust to alternative measures of corporate risk-taking, alternative definitions of high levels of managerial earnings forecasts and future firm value, as well as alternative specifications of our empirical models. We note that our findings should be interpreted with caution as there are limitations to our study. First, while earnings forecasts are used extensively as a proxy for voluntary disclosure, forecasts are just one component of a firm's voluntary release of private information. Thus we are only capturing one aspect of firm voluntary disclosure policy, though our use of managerial earnings forecasts at least partially heeds the call by Beyer et al. (2010) for researchers to disentangle the consequences of voluntary disclosure from the consequences of mandatory disclosure. Second, providing forecasts is a choice made by firms and thus subject to endogeneity concerns. While the inclusion of firm fixed effects in all of our models limits the concern, and we use a predictive model for a portion of our tests, it may still be the case that our findings are biased. Finally, due to limited coverage by the FirstCall database, our sample is predominately composed of large, profitable firms, somewhat limiting the generalizability of our findings.
