| Summary: | 碩士 === 東吳大學 === 會計學系 === 93 === Market value and sales performance are important for a company and it’s Board of Directors. A company tends to have a financial incentive to release higher earning report to raise its stock value or profit whenever its stock price is tumbling down or sales declines. This paper is aimed to discover if a company would announce optimistic financial forecasting to investors for better market performance.
Hypothetically, if the Board of Directors hold more company shares, the under performance status would have greater impact on the Board of Directors than the rest of investors. Since raising the share holding percentage and announcing optimistic profit news have higher costs than release financial forecast, the Board of Directors usually prefers to strengthen the quality of its financial forecasts. This paper will further evaluate if holding more company shares by the Board of Directors would affect the quality of a company’s financial reports.
After analyzing financial forecasting of all the listed companies who have declined dramatically in three straight years between 1997 and 2003, the result suggests the following facts:
First, the companies with declined market value are more optimistic in estimating their future performance. The estimate earnings are usually much higher than the actual earnings, and the forecast errors are commonly greater than normal. Even after adjustment, the gap between estimate earnings and actual earnings still tend to be significant. Nevertheless, when the market value falls, companies’ financial forecasts trend to lose their accuracy.
Secondly, companies with declined sales or earning per share (EPS) tend to release optimistic initial forecasting regardless future market performance. When companies’ yearly sales performance plunge or cannot meet target profits for two straight quarters, their initial filings of financial forecasting tend to have greater forecast errors. The possibility of amending their initial report is higher, and companies have a tendency to pending any negative amendment. Moreover, companies with financial or performance trouble are likely to release low quality financial reports.
Finally, companies with declined market value, poor sales performance, or lower EPS for two straight quarters, the initial financial forecast errors are smaller when the Board of Directors holding more companies shares. The companies are highly likely in keeping their initial forecast results or adjusting the initial reports slightly. The forecast errors in the amended report will also be smaller when the Board of Directors holding more companies shares. Therefore, shareholding quantity among the Board of Directors has significant amount of correlation with the quality of forecasting report.
|
|---|
