Business Commons^™

The Implications Of Firms' Derivative Usage On The Frequency And Usefulness Of Management Earnings Forecasts, John L. Campbell, Sean Shun Cao, Hye Sun Chang, Raluca Chiorean

Research Collection School Of Accountancy

We investigate how firms' use of derivatives impacts voluntary disclosure and offer four main findings. First, we find that when firms begin using derivative instruments, they increase the frequency of management earnings forecasts. Second, using path analysis, we find a direct link between derivative usage and forecast frequency, as well as an indirect link through reduced earnings volatility. Third, we find that CEOs with more pronounced career concerns increase forecast frequency only when derivatives make earnings easier to forecast and find no evidence that investor demand drives the decision to provide a forecast. These results suggest that the primary mechanism …