Determinants and Consequences of the Quality of Forward-Looking Information Disclosure: The Case of Indian Listed Companies

Abstract

This study aims to examine the determinants and consequences of the Quality of Forward-looking Information Disclosure (QFLID) among non-financial Indian listed companies. Following objectives are accomplished in this study: Firstly, to investigate the association between Corporate Governance mechanisms (CG) and QFLID. Secondly, to investigate the impact of QFLID on Firm Value (FV) and lastly, to investigate the impact of QFLID on the Accuracy of Analysts’ Earnings Forecast (ACUAF). The study uses a sample of 2120 observations of non-financial companies listed on the Bombay Stock Exchange (BSE) from 2006 to 2015. To measure QFLID, this study adopted a multidimensional framework designed by Beretta & Bozzolan (2008). Both the quantity and the richness dimensions are considered in this framework.
Regarding the first objective, the results indicate that board size, frequency of board meetings, board independence, female presence on the board, frequency of audit committee meetings, independence of the audit committee and female presence on the audit committee have positive associations with the QFLID. These results are in line with the perspectives of the agency, signalling and resource-dependence theories. However, the study found that CEO duality, blockholder ownership, institutional ownership, promoters’ ownership, audit committee size and audit committee financial expertise have no relationship with the QFLID.
To achieve the second objective, the empirical results found that QFLID is positively and significantly associated with FV, which is consistent with the agency and signalling theory perspectives. Thus, firms with high QFLID increase FV more than those with a low QFLID.
Concerning the third objective, the analyses indicate that QFLID is positively associated with ACUAF, meaning that firms with high QFLID increase ACUAF as compared to those with low QFLID. This result supports the signalling theory, suggesting that managers increase FLID as it reduces information asymmetry and improves ACUAF.
The current study also conducted a series of tests to check the robustness of the main results. The findings of these additional and robustness tests provide evidence that the essential findings of this study are robust and unchanged.