...issue voluntary earnings forecasts frequently across the board. In addition, the Canadian forecasts tend to be more precise than those of their American counterparts.

INTRODUCTION

Prior research in the study of voluntary earnings disclosures finds that managers release information that is unbiased relative to subsequently revealed earnings and that tends to contain more bad news than good news [Baginski et al.(1994), and Frankel (1995)]. Such releases are also found to contain information content [Patell (1976), Waymire (1984), and Pownell and Waymire (1989)]. Although forecast release is costly, credible disclosure will occur if sufficient incentives exist. These incentives include bringing investor/manager expectations in line [Ajinkya and Gift (1984)], removing the need for expensive sources of additional information [Diamond (1985)], reducing the cost of capital to the firm [Diamond and Verrechia (1987)], and reducing potential lawsuits [Lees (1981)].

More recently, studies show that managers are more likely to issue voluntary forecasts in a less litigious environment [Frost (2001)], [Johnson et al, (2002], while another [Baginski et al. (2002)] indicates that there are legal environment differences between the U.S. and Canada in issuing earnings forecasts when smaller size firms are evaluated. My research extends the aforementioned studies by evaluating U.S. and Canadian firms of all sizes and over a more extended period. The research question becomes: Do Canadian firms issue voluntary earnings forecasts with greater regularity than U.S. firms and which forecasts exhibit greater accuracy?

Clarkson and Simunic (1994) note that unlike the U.S., courts in Canada generally require unsuccessful plaintiffs to pay the costs of a successful defendant. Also, because plaintiffs have no absolute right to a jury trial in Canada, judges hear technical cases and are less likely to award large settlements. In addition, Canadian provinces do not permit trial lawyers to work on a contingency basis. Also, it is much more difficult to bring a class action suit in Canada. All of these differences in the legal systems create a natural environment in which voluntary earnings releases may be perceived differently.

HYPOTHESIS...

NOTE: All illustrations and photos have been removed from this article.



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